The Central Cabinet on Wednesday today approved an ordinance approving an amendment to the Insolvency and Bankruptcy Code to prevent wilful defaulters from bidding for stressed assets, while the public sector banks reel under over Rs 9.5 lakh crore bad loan. The ordinance powers the government to select buyers of the stressed assets, which is likely to help banks get better prices. Meanwhile, the Finance Ministry had asked banks to be vigilant to ensure that wilful defaulters are prevented from buying stressed assets again.
Finance Minister Arun Jaitley, while addressing a press conference, informed that the changes in the IBC have been sent to the President by the Cabinet for his nod. He declined to give further details on the changes, until it is passed. The Ordinance is like to be presented in Parliament in the upcoming winter session.
The aim of the ordinance is to ensure that wilful defaulters do not get into the system again. “Preventing wilful defaulters from bidding for stressed assets will help banks get better prices for the assets and will move the pending cases faster,” A K Prabhakar, head of Research, IDBI Capital told Reuters.
Top banker Uday Kotak has suggested that there should be a forensic audit because even if somebody is not a willful defaulter there should be no misuse of company’s funds. He told CNBC-TV18 that the bidding process should be subject to two criteria: the risk-adjusted value of the bid should be properly factored in, and if forensic audits of the companies find that there has been a misuse of funds.
Earlier this year, Uday Kotak had shown interest in buying stressed assets. He had said that he would also use capital for pursuing opportunities in acquisition and resolution of stressed assets in the banking sector.
The government has also formed a 14-member committee to review and improve the implementation of the insolvency and bankruptcy code (IBC), which have admitted nearly 300 cases in the last one year. It also approved massive Rs 2.11 lakh crore bank recapitalisation plan last month.