Although the recent amendments to the Insolvency and Bankruptcy Code (IBC) to prevent errant and defaulter promoters from bidding to reacquire their own enterprise’s assets is intended to speed up the resolution of bad assets, it is not without demerits. Instances of loans or credit facilities turning bad due to reasons beyond the control of the borrowers are not uncommon. The lack of professionalism of lenders, particularly public sector banks, and systemic weakness when it comes to judge and ascertain the various viability and feasibility aspects of the project, and accommodating external influence while granting credit facilities are factors from the lender’s side that are attributed to loans becoming bad. The economy is poised for growth and hence dynamic. It is always under the influence of global economic forces, and the cascading impact of the negative forces are creating stresses in many segments and adversely affecting cash flows.
Borrowers, who have excessively taken loans and siphoned off funds for other purposes and are deliberately withholding repayments, are turning the good money into bad. Thus, a combination of factors have contributed to the alarming level of non-performing assets. Generally, debarring all defaulters without considering the rationale behind the loan converting into non-performing asset is improper, will send wrong signal and negatively impact on the enthusiasm of entrepreneurs at a time when the government is giving paramount importance to start-ups. Depriving the genuine defaulter from bidding to reacquire own enterprise’s assets will be beneficial to the lenders as the possibility of getting a higher value can’t be ignored. Outside bidders, who take advantage of the situation, will manage to get the assets at lower prices. The chance of the promoter going for litigation to get back the assets are ample as no genuine entrepreneur who had taken risks would like to leave the assets.
Notwithstanding the need for rapid recovery of bad loans, it is essential to proceed selectively against the defaulters in order to avoid delay in resolution as well as to provide justice to genuine entrepreneurs who are contributing to the growth of the economy. Credit expansion and growth of private investment should not be hampered.
VSK Pillai Kottayam
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