Friday, October 12, 2018

Asset Resolution through Insolvency and Bankruptcy Code (IBC), 2016

Ever since the financial market  has come into existence, the problem of loan default is  haunting the banking sector. Since 1990s, under BASEL norms, NPA concept has been  implemented to assess the real health of the credit portfolio of  banks. Many a laws have been enacted to have effective and timely recovery in the loan accounts. BIFR proceedings under Sick Industries  Companies Act, Debt Recovery Tribunal,  SARFAESI Act, Lok Adalat, civil courts, all have been performing their roles to help banks make effective recovery. Inspite of all these institutions and the laws, NPAs of the banking sector are mounting up.

It is not that all loans go bad due  to malicious intention of the debtors. The problem is when a loan starts showing the symptoms of sickness or it goes bad, the banker become interested in recovery whereas the borrower is more  interested in rehabilitation. There arises  the conflict of interest between the debtor and the creditor.

The reasons of this conflict may be many; the most important was the absence regulations, which  could define the common guidelines, standard procedure and fixed time line to  achieve the desired goal. Due to lack of common regulations, if a banker goes for SARFAESI action, the borrower appeals to DRT;  if the banker approaches  High Court for  liquidation of a company, the company goes to BIFR for rehabilitation. In a nutshell, all these previous laws have not come up to the  expectations of the bankers.

The Insolvency and Bankruptcy Code, 2016 has tried to address all these issues.  Insolvency is the stage when a borrower is unable to pay his dues in time. And the bankruptcy is the legal status when a court declares a borrower  bankrupt since he is not able to pay his liabilities out of his total assets. The bankruptcy  laws in India are very old,  made under the British Raj. However, with some modifications, the bankruptcy laws have also found places in its own ways under the SICA, DRT and SARFAESI Act. The Insolvency and Bankruptcy Code (IBC), 2016 has been enacted to merge all these existing laws related to insolvency and bankruptcy. Though it  is a new tool for recovery for the bankers, but it  is viewed positively by both the lenders as well the borrowers. How far it will succeed and how effective it will be, we have tried to address in our one day workshop on “Asset Resolution through Insolvency and Bankruptcy Code (IBC), 2016”.

For workshop or webinar on different areas of banking, please visit my website . At Banking Quest, we endeavor to   spread awareness about the basic banking guidelines among the public, in general and the youngsters joining the banking industry, in particular. Banking industry is fast changing and also passing through turbulent phase of rising NPAs and the financial frauds. The present situation has endangered the career of the young bankers and also the deposits of the general public.

Banking Quest aims to support the present and the aspiring bankers by updating their knowledge through the platform of this website ( ,  online coaching and by conducting the off-site workshops

Tilak Gulati
Executive Trainer