Creditors must take haircuts to end bankruptcy: Arun Jaitley

Lok Sabha passes Insolvency and Bankruptcy Code Amendment Bill

Loan defaulters can participate in bidding under the insolvency proceedings after paying due interest and making their bad loan accounts operational, Finance Minister Arun Jaitley (pictured) said on Friday.

The government cannot allow loan defaulters to “merrily walk back” by paying a fraction of the due amount, he said while replying to a debate in the Lok Sabha on the Insolvency and Bankruptcy Code Amendment Bill, 2017, later passed by voice vote.

Banks and creditors would need to take a “haircut” on their bad loans, even as defaulting promoters could make their businesses operational again by paying the outstanding interest on the loan. An ineligibility criteria was required to keep promoters responsible for non-performing assets (NPAs) from coming back to take over the company. Jaitley clarified that management was not barred from making a unit operational if it paid the outstanding interest on the stressed loan. 

“No one is being barred for life and neither are we asking that you pay the whole amount. Just pay the interest and make the account operational,” he said.

The Bill seeks to replace an ordinance promulgated in November to prevent persons from misusing or vitiating the provisions of the Insolvency and Bankruptcy Code (IBC). Ineligible persons or entities will include undischarged insolvent, wilful defaulters and those whose accounts have been classified as NPA. 

These persons, however, can become “eligible to submit a resolution plan” if they clear all the overdue amounts with interest and other charges relating to their NPA accounts. Those defaulters who had participated in the insolvency proceedings before November 23 can also bid for stressed assets provided they clear their dues in a month.

Taking a dig at Congress member Gaurav Gogoi, the minister said NPA was a “legacy problem” and mainly on account of reckless lending undertaken by banks during the Congress-led UPA regime.

Gogoi had said NPAs, low during the UPA regime, had escalated during the present government. 

Jaitley replied: “But I am sorry that Gogoi has still not take cognisance of what the problem is. How did this problem of NPAs happen in such a big magnitude? Gogoiji has studied in good educational institutions of the world and he must have many times heard of the proverb that there were three types of lies — lies, damned lies and statistics. Today, he has himself become a victim of the third one.”

Citing World Bank data, Gogoi said the gross NPA ratio was 2.7 per cent in 2011, 3.4 per cent in 2012 and 4 per cent in 2013. After the NDA government took over in 2014, the NPA ratio rose to 4.3 per cent, and further to 5.9 per cent in 2015 and peaked to 9.2 per cent in 2016, he added.

Jaitley responded by saying that during the Congress-led regime efforts were made to brush the NPA problem under the carpet by “window dressing” and “evergreening” of bad loans.