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There are concerns that rules under the Insolvency and Bankruptcy Code have been made too strict and can result in bigger haircuts for lenders. Photo: Bloomberg
There are concerns that rules under the Insolvency and Bankruptcy Code have been made too strict and can result in bigger haircuts for lenders. Photo: Bloomberg

Insolvency resolution

A clearer picture on the effects of the IBC ordinance will only emerge as and when the 12 large cases referred to the NCLT are resolved

The twin balance sheet problem is said to be one of the biggest impediments to the revival of growth and private investment. However, the process of resolving this is now well underway. On the one hand, the centre is working on a massive bank recapitalization programme, and on the other, lenders are taking defaulters to the bankruptcy court.

Through an ordinance last week, the government barred wilful defaulters and people associated with defaulting firms from participating in the insolvency process. Finance minister Arun Jaitley, in a blog post on Tuesday, said the government has put in place a clean system by which wilful defaulters may be kept away from the management and the recovery will happen in a time-bound manner. The entire process is commendable.

However, there are concerns that rules have been made too strict and can result in bigger haircuts for lenders, as it will potentially reduce competition for taking over stressed assets. A clearer picture will only emerge as and when the 12 large cases that have been referred to the National Company Law Tribunal are resolved.

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