Nomura hails passage of bankruptcy law

A day after the Insolvency and Bankruptcy Code was passed by Parliament, brokerage firm Nomura on Thursday said it was a big positive for banking sector and India’s ranking in ease of doing business.

But, experts including bankers have raised concerns over lack of infrastructure facility which may hinder its implementation.

The code is a big positive for the banking sector, which is currently burdened with stressed assets. As it gives banks a legal path for recovering their dues in a time-bound manner, Nomura said. It said the law should make lenders more confident in lending and borrowers more accountable. Meanwhile, the Finance Ministry said that the law will provide institutional machinery for dealing with debt defaulters which India was lacking until now.

“Hitherto India was lacking the legal and institutional machinery for dealing with debt defaults as per the global standards. The recovery proceedings by creditors, either through the Contract Act or through special laws such as the recovery of debts due to Banks and Financial Institutions Act, 1993, and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, has not had desired outcomes,

“Similarly, action through the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA), and the winding up provisions of the Companies Act, 1956, have neither been able to aid recovery for lenders nor restructuring of firms. Laws dealing with individual insolvency, the Presidency Towns Insolvency Act, 1909, and the Provincial Insolvency Act, 1920, were almost a century old,” it said.

Experts, including bankers, have voiced concerns that in the absence of adequate number of tribunals and insolvency practitioners, execution may take more time.

India’s largest lender State Bank of India Chairman Arundhati Bhattacharya has said that the bankruptcy law was not a magic wand to reduce all banking problems, and that its implementation needed to be taken care of.