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Reserve Bank of India (RBI) Governor Shaktikanta Das on Thursday said there is scope for improvement in the Insolvency and Bankruptcy Code (IBC) so that the time taken to admit a case to the National Company Law Tribunal (NCLT) is reduced.
In this regard, there is perhaps need for certain legislative amendments also, Das said in an interaction with Financial Times - Indian Express.
The RBI has made some suggestions to the government on the same.
“For example, it takes a lot of time to admit a case to the NCLT. So, can we deal with this issue through some legal amendments…. So, there is scope for some improvement. And the time taken in the whole process needs to be reduced by simplifying certain procedures,” the Governor said.
Average recovery and haircut
On lenders taking almost 90 per cent haircut in some of the IBC resolutions, Das observed that while the percentage of recovery is an important factor, the primary objective of the Code is resolution of bad assets — wherever possible to resolve the business so that the company/ business continues its operations and the economic value which the business creates continues unabated.
The Governor emphasised that the intention is that if a business or a company continues, economic activity continues and jobs also remain protected.
“The average recovery under the IBC was about 45 per cent for the previous four-five years. It came down to 40 per cent, taking into account the pandemic year.
“Now, yes, in some cases the haircut has been 90 per cent but there are cases where the haircut has been much less,” Das said.
NPAs quiet manageable
The Governor underscored that according to the numbers that RBI has, currently, the non-performing asset (NPA) numbers of lenders look quiet manageable.
“For example, at the end of June 2021, for the banking sector, the Gross NPA was about 7.5 per cent (of gross advances) and for the NBFC sector, it was a little less than that.
“.…At the moment, the situation on the stressed assets front, looks well within manageable limits,” Das said.
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