Small businesses may see tweaks in resolution model – The Economic Times

NEW DELHI: The cabinet committee on investment and growth has asked ministries to consider modifications in the resolution mechanism for small companies and the real estate sector under the Insolvency and Bankruptcy Code (IBC), apart from revisiting the norms for non-performing assets (NPAs) for micro, small and medium enterprises (MSMEs) as part of discussions to help distressed segments of the economy and accelerate growth.

The decisions have been communicated to ministries after the first meeting of the panel headed by Prime Minister Narendra Modi, sources told TOI. The committee, which has defence minister Rajnath Singh, home minister Amit Shah, MSME and highways and transport minister Nitin Gadkari, finance minister Nirmala Sitharaman and railways, commerce and industry minister Piyush Goyal, had met over two weeks ago in the backdrop of economic growth sharply decelerating to 4.5% during the second quarter of the 2019-20 fiscal year.

While some of the issues have been under discussion, ministries will now work out the details after analysing the issues. Clearly, sickness was one of the concerns, prompting the government to review the bad debt framework for small businesses, something that the Reserve Bank of India has not been open to although it has put in place a liberal set of rules for restructuring loans. The insolvency related concern in the real estate sector is seen to have been largely addressed through amendments to the law.

The issue of reference of small loans to the National Company Law Tribunal under IBC has also been discussed by bankers during a meeting with Sitharaman and her team officials. There were suggestions from the ministry of corporate affairs that lenders could look at referring cases above a threshold for insolvency resolution process. But the government had refused to issue any advisory or give a directive.

The law does not allow the promoters of companies to bid for companies that are facing insolvency resolution, which often results in small businesses facing liquidation with the founders as well as the lenders not gaining anything from the exercise. Often SMEs face distress due to hold-up in payments from buyers, which could be large businesses or even the government, something that Gadkari had flagged during a meeting with Sitharaman, prompting the Centre to clear arrears and tax refunds.

The other focus area seemed to be investment with the cabinet committee asking the department of financial services to initiate specific steps to tackle credit flow crunch that sectors or projects may be facing. Besides, the FDI rules are also being reviewed, an exercise that was independently initiated by the department for promotion of industry and internal trade several months ago.

via Small businesses may see tweaks in resolution model – The Economic Times

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s