The bankruptcy ordinance promulgated by the President last week will pave the way for clean business by putting a premium on integrity, a senior finance ministry official said today.
The official said that ordinance does not seek to provide any relief to loan defaulters while on the other hand it explicitly prohibits them and their associates from reclaiming assets under resolution at a discount.
Observing that there were reports that some defaulting promoters were trying to buy assets at huge discounts in clandestine manner, the official said it was moral and ethical responsibility to prohibit entry of such misuse of public money.
The ordinance, the official added, is primarily aimed at safeguarding the public money from being misused by dishonest businesses.
"The message in the ordinance is loud and clear. Business will have to either perform or exit and there is absolutely no room for wilful defaulters or dishonest business. Cushion of loan waiver of any kind does not arise," the official said.
The move is against unscrupulous elements in the business who were using the banks' money irresponsibly.
It may be recalled that during 2008-14, the total loans of public sector banks increased by Rs 34 lakh crore due to aggressive lending.
Despite defaults, the accounts were not realistically declared non-performing assets (NPAs) and were kept under the carpet by restructuring them through further financing.
Last week, the government promulgated an ordinance to bar wilful bank loan defaulters as well as those with NPA accounts from bidding in auctions being done to recover loans under the insolvency process.
The ordinance will ensure recovery of bank loans from defaulting corporates and RBI has already taken steps to recover Rs 1.75 lakh crore from 12 corporates under the insolvency law.
Banks have already filed cases in National Company Law Tribunal for resolution of these 12 cases of big default, which is about 25 per cent of the total NPAs.
Some of them are Bhushan Steel Ltd, Essar Steel, Alok Industries, Amtek Auto, Lanco Infratech and Jaypee Infratech Ltd.
After cleaning the system, the government has announced unprecedented recapitalisation plan of Rs 2.11 lakh crore to enable genuine and honest business ventures especially MSMEs to grow and flourish creating job opportunity.
The official also said that there is no easy money for banks under the recapitalisation and it is linked to number of reforms.