RBI working on system for exit by businesses facing bankruptcy

It is felt there has to be a good bankruptcy system in India, says RBI Executive Director

In the absence of a good bankruptcy code in India, Reserve Bank is working on a system to enable entrepreneurs seeking to exit insolvent business, a top official of the apex bank said.

"We have a tendency in India that we do not like failures. We think everybody should pass and have distinction. We do not have a culture to accept failures.

"How to create that? There is a thinking in Reserve Bank, we have been thinking how to create a system so that people should voluntarily withdraw from an unattractive business," RBI Executive Director B Mahapatra said in his address on "Managing Stressed Assets" organised by Assocham.

He said it is felt there has to be a good bankruptcy system in India.

Mahapatra said RBI has started working on an enabling system for banks that will help those entrepreneurs seeking an honourable exit from unattractive ventures.

He said here in India the bankruptcy has a stigma attached as, "Nobody wants to be called a bankrupt person... Indian philosophy is that we do not like failures".

Mahapatra said RBI has just begun working on such a framework to enable companies a voluntary withdrawal.

While there is a talk of providing legal provision in the Companies Act in this regard, but the RBI would like to work on examining the regulatory framework for the voluntary withdrawal by the entrepreneur, he added.

Pointing to the problem of bad loans, he said, it is a known fact that the problem of stressed asset is there. And particularly in the cases of public sector banks, the problem is more worrisome, though the private sector lender have fared much better.

"Reserve Bank has now provided a system of incentives and disincentives for following rules of the game for Corporate Debt Restructuring (CDRs)."

The problem of stressed assets earlier was in traditional sectors such as iron and steel, fertilisers etc but of late it is in infrastructure, he said.