Insolvency Law Reduces Banks' NPAs, Official Says

New Delhi, Oct 1 (PTI) The insolvency law has helped banks reduce their non-performing assets and the collective endeavour must be to compress timelines, deepen bidder participation and sharpen tools that can discourage value destructive behaviour during the resolution process of stressed assets, a senior official said on Wednesday.

Financial Services Secretary M Nagaraju said several advisories have been issued in the recent past with respect to implementation of the Insolvency and Bankruptcy Code (IBC).

The Code, which was enacted in 2016, provides for a time-bound and market-linked resolution of stressed assets. Over the years, banks have been able to recover dues through the use of the Code and entities going for settlement before initiation of the resolution process.

"Once a decision is taken in the CoC (Committee of Creditors), individual banks must stick to dharma, collective dharma. Banks' representatives, including panel liars, must attend NCLT (National Company Law Tribunal) hearings without fail to avoid unnecessary adjournments and post-legislative delays.

"As far as possible, they themselves should not seek any adjournments, and they must attend the hearings well-prepared with a senior bank officer. There should be a proper evaluation matrix of the resolution, professionals, and law firms. We have advised all the banks to go for, in fact, firms rather than individuals," Nagaraju said.

He was speaking at the event in the national capital to mark the ninth annual day of the Insolvency and Bankruptcy Board of India (IBBI), a key institution in implementing the Code.

The financial services secretary noted that the insolvency law is, at heart, a story of second chances. "For capital, for companies, and for workers".

"Our collective endeavour must be to compress timelines, deepen bidder participation and sharpen tools that can discourage value destructive behaviour," Nagaraju said.

According to him, public sector banks have one of the lowest levels of non-performing assets and that is also partly because of the stringency of the Code.

"If there is no fear of losing the ownership of the company or the firm, people would have actually not come forward to pay the money. That way actually the contribution of IBC, we should also see in the indirect way, how people are coming forward to pay. And you know, our OTS (One Time Settlement) now is much more sought after," he said.

Streamlining the implementation of the insolvency law in coordination with public sector banks is the endeavour of the Department of Financial Services, he added.

National Company Law Appellate Tribunal (NCLAT) Chairperson Justice Ashok Bhushan highlighted the need to augment institutional capacity, enhance value realisation through robust competitive bidding, and encourage the wider adoption of innovative platforms.