Mumbai, July 01, 2016 : The Centre will soon put out the draft code on resolution of distressed financial firms for discussion, a topFinance Ministry official said at an ASSOCHAM event held in Mumbai today.
“A committee of experts is presently working in the Department of Economic Affairs for resolution mechanism to deal with bankruptcy in insurance companies, banks and financial sector entities, this is work in progress and suggestions from the industry are very welcome,” said Dr Saurabh Garg, joint secretary, Union Finance Ministry said while inaugurating an ASSOCHAM Summit on Asset Reconstruction Companies (ARCs).
“We are working on this code in the department and may be soon we will be able to get the draft law which will be put out for discussions,” he added.
He said that changes in the Insolvency and Bankruptcy code which have been approved in May, 2016 are a very important milestone that includes – consolidation of all laws related to insolvency for companies, limited liability entities, unlimited liability partnerships and individuals; time bound manner for the maximisation of value of the assets and it also separates commercial aspects from judicial aspects of insolvency proceedings.
“This operationalisation work has already started and the focus is to do it as fast as possible with insolvency professionals’ support subject to their availability,” said Dr Garg.
“It is expected that this fast-track insolvency processes, which are also available for corporates in the LLPs ,would help lead to a quantum leap in the credit market and perhaps this will also lay the foundation for a corporate bond market,” he added.
“The insolvency Act that has been passed would also perhaps help in ensuring that this correction of lending which needs to be done in Indian eco-system will perhaps get the necessary impetus,” he further said.
Dr Garg also said that the concept of ARC needs to be promoted and needs to be looked at as a specialised institution entrusted with the task of recovering which requires different skill sets.
“There are three sectors which have the maximum stressed assets – basic metal and metal products, construction and textiles, these are also the sectors which have a high employment potential, esp. construction and textiles so it is all the more necessary that in these sectors where there are the highest stressed assets also need to ensure that those assets come back into the system because they have a very high employment potential and that needs to be only emphasised,” further said the joint secretary.
He said that though there are about 16 ARCs with total net worth of about Rs 4,000 crore, which has to be seen in the context of an entire system where there are lakhs of crores of NPAs.
“That is an area where we perhaps need to look at with more focus. Though it is not necessary that capital base has to be in the same tune as the NPAs but it does reflect that it is an area where greater focus is required,” said Dr Garg.
Talking about the Enforcement of Security Interest and Recovery of Debt Laws and Miscellaneous Amendment bill which seeks to amend four laws – SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) Act, RDDBFI (Recovery of Debts Due to Banks and Financial Institutions) Act, Stamp Act and Depositories Act, he hoped that it will hopefully be taken up in the Monsoon Session of the Parliament.