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Finance Minister Nirmala Sitharaman on Thursday asserted that the insolvency and bankruptcy code (IBC) enacted by Modi-led government had played a key role in helping banks recover from the NPA crisis created by Congress and its allies during the UPA years (2004-14).
She slammed the Congress and its allies for pushing Indian banks into a crisis during UPA years through ‘phone banking’ and indiscriminate lending.
Post implementation of IBC, the gross non-performing assets (GNPA) ratio of scheduled commercial banks dipped to a multi-year low of 3 per cent and the net non-performing assets (NNPA) ratio to 0.7 per cent (as of December 2023), Sitharaman highlighted in her post at platform ‘X’, formerly Twitter.
Like with the GST, Congress was not keen on expending political capital to build consensus and implement reforms such as IBC, Sitharaman noted. This is even as many expert groups including one headed by noted economist Raghuram Rajan in 2008 had highlighted the need for a modern corporate insolvency regime.
“Despite the crying need for enacting insolvency laws, the UPA regime consciously sought to reward its cronies at the cost of the banks and operational creditors who had to run from pillar to post to recover their dues”, Sitharaman said.
‘Important steps’
Giving businesses a legally secure way out in the event of failure and freeing up locked-up credit for efficient reallocation as IBC is currently doing are essential steps to increase investment and growth. “It is a pity that India had to wait decades before the political will could be found to implement these necessary reforms”, Sitharaman said.
“@INCIndia has always shied away from taking progressive steps for India’s growth and development and encouraged only regressive policies”.
She noted that the erstwhile Board of Industrial and Financial Reconstruction (BIFR) regime resolved less than 3,500 cases in the nearly 30 years since its inception in 1987.
By contrast, from its inception in 2016 until March 2024, the IBC has rescued 3,171 distressed companies and assisted in the shutdown of unviable firms.
Notably, 40 per cent of the resolved companies were previously inactive, showing its ability to revive stagnant businesses.
Overall, an amount of ₹3.36 lakh crore has been recovered by creditors, which is around 32 per cent of what was claimed and 162 per cent of the liquidation value.
On average, resolution plans are yielding about 85 per cent of the fair value of the distressed companies. This recovery has helped creditors provide additional credit, thereby promoting economic development, she added.
Strengthening NCLT
Sitharaman also said that Modi-led government remains committed to strengthening the capacities of the National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT) across the nation by expeditiously filling vacancies.
Finance Minister said that Modi-led government has taken numerous steps to strengthen the insolvency framework and ensure resolutions happen in a timely manner,
The IBC framework is continually evolving to ensure that it can meet the evolving needs of a rapidly growing economy, she added.
Sitharaman also cited the findings of an IIM Ahmedabad study to buttress her point that IBC has yielded positive outcomes for the economy.
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