A Brief Colonial History Of Ceylon(SriLanka)
Sri Lanka: One Island Two Nations
A Brief Colonial History Of Ceylon(SriLanka)
Sri Lanka: One Island Two Nations
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Thiranjala Weerasinghe sj.- One Island Two Nations
?????????????????????????????????????????????????Monday, June 19, 2017
India: Does Govt. Have Strategy for its Bankruptcy Policy?
The pragmatic method should be to find a way to enforce the Insolvency and Bankruptcy Code without leading to closure of the units. Is it possible in the present situation is the question.
( June 18, 2017, Chennai, Sri Lanka Guardian) It
is often said that industries may become sick but the industrialists
owning them rarely become sick. While several sick industrial units and
commercial establishments default on the loan and interest repayment and
owe several thousands of crores of rupees to the banks and other
financial institutions , the directors of most of such units lead an
affluent life with high salaries and perks, benefits and privileges.
Obviously, the sickness of the industries are not reflected on the
owners of the units in most cases.
In the past, the government and the banks have been dealing with these
sick units with soft gloves, providing them interest waivers ,
additional loan and revised repayment schedules. Still, in many cases,
their financial conditions have not improved and the exposure of the
banks to these units have only increased causing more discomfort to the
banks.
The demand of farming community :
Such scenario has caused heart burnings amongst people in the vulnerable
sections of society such as farmers and fishermen who also default in
payment of loans and interests but are harassed by the lending
institutions that demand repayment. This scenario explains the recent
demand for waiving of farmers’ loans all over India by the farming
community. The farmers ask that when huge corporate loans and interest
are waived by the banks with the so called objective of reviving these
corporate entities, why such “courtesies” could not be applied to the
vulnerable farming community too.
On the face of it, this appears to be a legitimate question though the economic pundits will not agree.
Does Modi government have a strategy?
The present decision of the Modi government to implement Insolvency and
Bankruptcy Code (IBC ) has been received with much appreciation all over
India. President of India had approved an ordinance amending the
Banking Regulation Act, 1949, giving more powers to Reserve Bank of
India in dealing with the non performing assets (NPA) , which indicate
the resolve of the Modi government to sort out the NPA problem once for
all.
The extent of the prevailing NPA can be gauged from the fact that around
Rs. 10 lakh crore of loans are either non performing or stressed. This
is roughly 12% of the total loan extended by the banks and other
financing institutions. It is reported that Reserve Bank of India has
shortlisted 12 accounts (defaulting companies) each more than Rs. 5000
crore, for resolving via Insolvency and Bankruptcy Code. 60% of the
amount has already been recognized as NPAs. Reserve Bank of India is
reported to be planning to announce 6 more bankrupt companies soon.
Now, the million dollar question is what will the banks do with these
large sick companies after announcing them as bankrupt companies ? In
any case, most of these companies are not in a position to repay their
debts in the present circumstances for whatever reasons.
Now, that the Modi government has taken the plunge and has implemented
the Insolvency and Bankruptcy Code , one is not sure what is up in it’s
sleeve and one wonders whether Modi government has any particular
strategy in dealing with the defaulting and sick companies.
Can bankruptcy law be implemented without affecting growth ?
Will the decision to declare the companies as bankrupt result in their
being closed and ceasing operations? This would create several other
problems like loss of employment, loss of production and loss of
invested resources apart from the loss of investment to thousands of
small level equity holders, who may have invested their life long
savings and post retirement benefits, in these companies.
Obviously, such issues have forced the governments in the past not to
rock the boat too hard when dealing with the defaulting corporate
bodies.
The pragmatic method should be to find a way to enforce the Insolvency
and Bankruptcy Code without leading to closure of the units. Is it
possible in the present situation is the question.
Of course, many of these defaulting companies have huge assets such as
land , plant and machinery and infrastructure. The banks may be able to
monetize them straightaway to recover part of their loan but this would
be a counter productive solution ,that will virtually destroy the units
with consequent several problems for the country like loss of employment
etc.
While the bankruptcy code will alleviate many of the financial
obligations of the defaulting companies, still they may not be enough to
revive the companies without additional fund flow and investment. The
question is who will invest in such sick companies , some of which may
be facing fundamental issues like product or technology obsolescence,
faulty basic designs etc.
Of course, by enforcing the bankruptcy code, the banks may try to
persuade the creditors to take over the company by converting the debt
into equity. But, in many cases, the creditors may not have the
expertise or more investment capability to bring about revival of the
units.
Alternately, the banks may have to persist with the existing management
and promoters and provide them more sops. This will make the banks and
financial institutions a laughing stock.
Does Modi government have a forward plan?
The post bankruptcy scenario for the individual corporate unit is hazy
and uncertain. This possibility makes one suspect whether the Modi
government is moving with it’s much needed bankruptcy policy without a
forward plan. If it has one, it has not so far revealed it to the
country men in a convincing manner.
One sensitive question:
Finally, one sensitive question that Modi government would face is
whether the inefficient or dishonest promoters of the sick companies who
have brought the companies into such sorry state of affairs would be
allowed to go scot free, without being punished by the bankruptcy law.