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The Centre on Friday sought to silence critics of the Insolvency and Bankruptcy Code (IBC), who contended that the entire process was leading to “huge haircuts” for the banking system.
Describing IBC as an ‘extraordinary success’, Corporate Affairs Secretary, Injeti Srinivas, countered the current narrative on ‘haircuts’ as a myth that had to be busted.
He also described as a myth the contention in certain quarters that IBC has sought to prevent promoters from bidding and also that there is no competition in the market for stressed assets.
“We have only prevented undesirable resolution applicants, which could include promoters if certain conditions are not met. It is not right to say that all promoters have been prevented from bidding,” Srinivas noted.
He said IBC has been a “game changer” and that the future contours of the Indian economy had been positively impacted by this reform. Srinivas was speaking at the inaugural session of a two-day conference on insolvency and bankruptcy reforms in India, organised by IBBI and the Indira Gandhi Institute of Development Research in the Capital.
Srinivas said the performance evaluation of the code has to be a “relative evaluation” given that there was nothing on the ground prior to its implementation.
LITMUS TEST
The “litmus test” has been passed given that as much as 270 per cent of the “liquidation value” has been received in the 32 cases that were resolved, Srinivas said.
Assuming that the liquidation value is a reasonable indicator, 270 per cent was done and so many jobs were secured (in these 32 cases), he said to bolster his point on the success of IBC.
“We can’t distort things. How do you expect 100 per cent recovery? There is no magic wand. In a bad loan situation, even if you get back the principal, it is a big achievement,” he said.
HAIRCUTS
“Everybody is talking about haircut. If there is bushy hair, there can be a haircut. If there is no bushy hair, what will you cut? To put it seriously, if hair has to represent liquidation value or economic value, and you are going below that, then there is hair. But your outstanding cannot be hair. If there was gold plating or evergreening in the hair, who will pay for it?” Srinivas asked.
IBC — which is just two years old — has turned out to be the most debated economic reform in the country. There are many views in favour and many against this legislative reform and its impact on the Indian economy.
Srinivas felt that IBC should be seen as a legislation focused on ‘resolution’ and not one intended for ‘recovery’.
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