The insolvency and bankruptcy code will now be tested to the hilt as RBI has decided to shut down the numerous schemes for bad loan resolution
The Reserve Bank of India (RBI) has done well to shut down the numerous schemes it had put in place to help banks deal with their bad loans. These schemes had outlived their utility once the new bankruptcy process was introduced. They were essentially a regulatory attempt to build a resolution system without the legal backing from a strong insolvency law.
The end of such regulatory forbearance comes at almost the same time that bidding for nine of the 12 large defaulting companies has begun.
The bankruptcy regime will now be tested to the hilt. There could be some hiccups along the way, both in terms of who bids for the assets of defaulting companies as well as the haircuts that banks will have to account for. There is almost no past experience to go by. Every hiccup is likely to create controversy.
However, the direction of overall change is welcome, since capitalism is as much about easy exit as it is about easy entry. The final result should be better allocation of capital by companies that know bailouts will be rare.
Editor's Picks »
- UK PM Theresa May survives confidence vote over Brexit deal
- 3rd instalment of advance tax due on 15 December
- Ex-lawyer blames Trump ‘dirty deeds’ as sentenced to three years
- Theresa May pledges to quit before next UK election as she fights leadership challenge
- United Bank of India raises deposit rates by 0.25%
- Escorts: Japanese joint venture to hone growth in tractors
- HCL Tech’s acquisition of IBM products raises more questions than answers
- Investors ignore NMDC’s price cuts, and worry about its Donimalai iron ore mine instead
- Steel stocks get winter chill as China demand issues resurface
- Why Uday Kotak’s defiance is scaring his bank’s investors