RBI Governor Recomends New Bankruptcy Code for Controlling Business Sickness

RBI Governor has stressed the need for institutions necessary for resolution of sickness, such as the new Bankruptcy Code and the Company Law Tribunals that will administer it as well as the Financial Resolution Authority for resolving financial institution distress.

Rajan was addressing the Federation of Indian Chambers of Commerce and Industry (FICCI) and Indian Banks' Association (IBA) Conference (FIBAC) today. His address covered in length issues of non - performing assets of Banks. Regulatory forbearance, where RBI makes it easy for banks to “extend and pretend”, is not a solution, he opined, as no other stake-holder – such as the promoter, tariff authorities, tax authorities, etc., contributes to resolution, Also, some large promoters take advantage of banker fears about assets turning non-performing to extract unwarranted concessions, without any sacrifice in the value of their stake.

RBI ended the forbearance accorded to restructured loans and henceforth, restructured loans will be classified as non-performing loans. However, RBI has made it easier to recognize and deal with distressed projects, Rajan commented; through creation of a database of loans over Rs 50 million for early identification of distressed projects to put them back on track. To deal with genuine problems of poor structuring, RBI has allowed bankers to stretch repayment profiles for performing loans to infrastructure and the core sector.

As India strives to regain its place in the ranks of prosperous nations, we must remember that what sets poor nations apart from the rich is not people or resources or even luck but good governance, which comes from strong frameworks and strong institutions, were his final words.