The requisite ecosystem for implementation of Insolvency and Bankruptcy Code, 2016 (IBC) — touted as the second-biggest financial reform by the Centre after GST — needs to be first set up in the country. Without it, banks may not utilise the Code, aimed to lower stress on the banking structure, SBI Chairman Arundhati Bhattacharya said.
Creation of the ecosystem involves creation of an information bank of the borrowers with the lenders, the performance track record of the borrowers as well as selection of judges to man the Debt Recovery Tribunal (DRT) and National Company Law Tribunal (NCLT).
"With the law (IBC), you need to set up the eco-system as well. Banks are not rushing towards it. The ecosystem has been created to an extent but needs to be fully put in place", she added.
She also said availability of data with the banks, track records of the lenders and selection of panel of judges are part of this IBC ecosystem.
According to a statement from the union finance ministry, the essential idea of IBC is that when a firm defaults on its debt, the control shifts from the shareholders and promoters of the defaulting company to a Committee of Creditors, who have 180 days and an additional 90 days to evaluate proposals to either resuscitate the company or take it into liquidation.
A sector expert opined that IBC has given banks the power to move DRT and NCLT on their own but many of the lenders have been withheld. Although the IBC was passed by the Parliament in May last year, no bank moved NCLT against any of the 12 companies which comprise 25 per cent of the total non-performing asset (NPA) prior to the Reserve Bank of India asking them to do so.
The NPAs of state-run banks at the end of last September rose to Rs 6.3 lakh crore as compared to Rs 5.5 lakh crore at the end of June 2016.
The reason, according to the retired official is the worry over higher provisioning which increases compliance costs for the lenders as well as acts as a drag on the profitability of the bank.
"Provisioning for those accounts which have been referred to the NCLT is slightly higher than we would have normally done. The RBI had asked us for a higher provisioning which we have done", Bhattacharya said adding that it will, however, not drag down the bottom line significantly.
Bhattacharya also said that although consumption leading to credit growth in the country is at a satisfactory 18 per cent, the investment-led credit growth has taken a backseat which is a cause of concern.
"Typically, investment comes in when capacity utilisation breaches 80 per cent of the installed capacity", she reasoned when asked why investment led credit growth has slowed down.
While the banking sector had anticipated a nine per cent overall credit growth, it has translated actually into 7.5 per cent of which, bank-led credit growth accounts for five per cent and the rest is led by CPC and bonds.