Govt plans debt waiver for small distressed borrowers under insolvency law

Corporate Affairs Secretary Injeti Srinivas estimates the waiver will cost Rs 10,000 crore annually.

The government plans to use the insolvency law to waive off the debts of small distressed borrowers, Corporate Affairs Secretary Injeti Srinivas has said.

The waiver will be offered using the 'fresh start' provisions of the Insolvency and Bankruptcy Code (IBC), he told news agency PTI in an interview.

The government has held discussions with the microfinance industry to select the criteria for the proposed waiver for small distressed borrowers from the economically weaker section (EWS).

He emphasised that the waiver—as part of individual insolvency—would be for the most distressed within the EWS.

"If you have once availed the fresh start, then you cannot avail it again for five years. We have worked out all safeguards to the satisfaction of the microfinance industry.

"It will (be) like taking haircuts. At a national level, over a three to four years period, it will be not more than Rs 10,000 crore," Srinivas told PTI in an interview.

There are various thresholds for 'fresh start', including that the gross annual income of the debtor does not exceed Rs 60,000.

The aggregate value of the debtor's assets should not be more than Rs 20,000 and that the aggregate value of the qualifying debts does not exceed Rs 35,000. Among others, such a person should not be having an own dwelling unit, irrespective of whether it is encumbered or not, according to the IBC.

"We had discussions with microfinance industry and their concerns are being duly factored in. The idea is not to destroy the microfinance industry.

"The idea is to give waiver for small distressed borrowers from debt obligations based on a criteria. The criteria has been discussed at length with the microfinance industry," he said.

Further, he said that the IBC provisions pertaining to personal guarantor to corporate debtor would be coming into effect immediately, followed by those related to partnership and proprietorship.

"Then we will look to bring fresh start provision," he added.

The IBC provides the framework to deal with distressed assets through a market-driven and time-bound process.