The President's assent to the ordinance to amend the Insolvency and Bankruptcy Code (IBC) that will bar defaulters from bidding for the stressed assets on Friday received thumbs up from stakeholders who described it as a major step towards "providing comfort to incoming new investors."
Breaking the news of the Presidential approval at a meeting in New Delhi with select editors, Finance Minister Arun Jaitley said: "The ordinance disentitles the big defaulters and makes it difficult for them to bid for distressed assets which was of their own making."
He said the ordinance does not ban them from bidding for the stressed assets but would make it difficult for them and disentitles them from doing it.
Shardul Amarchand Mangaldas & Co Executive Chairman Shardul Shroff noted that the ordinance identifies 10 categories of people as those disqualified from submitting resolution plans as resolution applicants.
"Promoters who are persons whose account is classified as non-performing asset (NPA) in accordance with RBI guidelines, and who have failed to make payment of all overdue amounts within a period of one year or more from the date of classification as an NPA, cannot participate unless they pay all overdue amounts with interest thereon and charges relating to the NPA before submission of the resolution plan," Shroff said in a statement.
"Another impact of the ordinance is to treat personal guarantors to corporate debtors in the same way as the corporate debtor.
"These amendments will save the Government 'blushes' in a situation where promoters of existing corporate debtors seeks massive haircuts in the guise of a resolution applicant in relation to a resolution plan," he added.
The changes proposed are expected to help streamline the process of selecting buyers for stressed assets.
"The ordinance is a major step towards creating a level playing field and providing comfort to incoming new investors, foreign players that process of the resolution would be very transparent," British consulting multinational KPMG in India Partner Manish Aggarwal said.
"It also signals that resolution process will ensure that existing sponsors who are covered by these amendments directly or indirectly cannot retain control of their companies at the cost of lenders by seeking huge hair cuts and being back in business," he added.
NPAs, or bad loans, in the Indian banking sector have crossed the staggering level of Rs 8 lakh crore, of which more than Rs 6 lakh crore are in the books of state-run banks.