Past measures of recovering debt from stressed companies were time consuming and many times ineffective, but those days where the lenders would get nothing were now over with the implementation of the new Insolvency Law, Finance Minister Arun Jaitley said on Saturday.
"We lived in a system for many years, which protected debtors and allowed assets to rust away. The old regime by which, the creditor would get tired chasing the debtor and end up recovering nothing is now over. If a debtor has to survive, he will have to service his debt or have to make way for somebody else. This will be the only correct way business would now be done," Jaitley said. He was speaking at a insolvency and bankruptcy summit organised by the Confederation of Indian Industry.
The Insolvency and Bankruptcy Code (IBC) was passed by the Parliament in 2016. Several cases have been taken up since under the IBC as banks look to clean up their balance sheets.
It's too early to judge the effectiveness of the IBC, Jaitley said, adding one would have to wait and observe over time, how much this law was effective based on various pronouncements of the tribunals and courts and then over a period of time to see what improvements were needed to ensure that the purpose it was created for was being served.
The total amount of NPAs in the system are estimated to be at least Rs 8 lakh crore, which are affecting banks balance sheets and the overall health of the economy. Jaitley, however, stressed that the purpose of the IBC was to save businesses and not merely to sell stressed assets.
"The ultimate objective really is not liquidation of assets, but to save these businesses, get either the existing promoters with or without new partners or new entrepreneurs to come in and make sure these valuable assets are preserved," the finance minister said.
The new regime under the IBC has significantly reversed the defaulter-debtor relationship, he added. Jaitley called for time-bound resolution of the NPAs and hopes the timelines laid down by the IBC would be adhered to.
