Blow to loan defaulters: Major amendment in Insolvency and Bankruptcy Code gets President’s nod

When will we see some steps to alleviate the situation of banks? When will the Government go after the borrowers who have run away after converting their loans in NPAs? Why are the rich being allowed to go scot-free? Such questions can come to the mind of only those who are living under rock, since in yet another move, the Government is now sealing the coffin of those who took the banks for a ride, during UPA’s era.

A day after the Cabinet approved the ordinance to amend the Insolvency and Bankruptcy Code, President Kovind gave his assent for the same. The ordinance will prevent wilful defaulters or promoters with some history of defaulting, from bidding for their own or other stressed assets at a discount. It will help prevent misuse of the Code as the defaulters are prohibited from submitting a resolution plan.

According to Ministry of Finance, the amendments will keep the wilful defaulters who are associated with non-performing assets or are habitually non-compliant, who may risk successful resolution of insolvency of a company, at bay.

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Such persons will also be restricted from participation in resolution or liquidation process.

The Insolvency and Bankruptcy Board of India (IBBI) has also been given additional powers. This is amongst one of the many steps the government is taking to bring about reforms in the finance sector. As per the World Bank Data, the Insolvency and bankruptcy code was one of the key factors, which enabled a 30 rank jump in the Ease of Doing Business rankings.

The recent Moody’s report, which gave India its first ratings upgrade in over a decade, also spoke highly of the Insolvency and bankruptcy code:

Recent announcements of a comprehensive recapitalization of Public Sector Banks (PSBs) and signs of proactive steps towards a resolution of high NPLs through use of the Bankruptcy and Insolvency Act 2016 are beginning to address a key weakness in India’s sovereign credit profile.

With this new amendment, the Code is only bound to be much stronger, and robust. The government believes these steps would strengthen the formal economy and encourage honest businesses and budding entrepreneurs to work in a trustworthy, predictable regulatory environment.

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