New Delhi, Nov 24: The ordinance to amend the Insolvency and Bankruptcy Code (IBC) has got President’s nod. Wilful defaulters, people associated with non-performing assets, or those who are habitually non-compliant cannot bid for stressed assets. While the move to plug the loophole in the Insolvency law, which allowed promoters to re-purchase their stressed assets at a discounted price, through an Ordinance is being hailed, there are some lenders who are not happy about it. Their reason: If promoters are barred from bidding, the non-promoters will bid conservatively and pressure banks for more discounts.
“The non-promoter bidders will look for distress valuation because if a promoter is given a chance, he knows the value of assets and would have put in a higher bid, and (then) others would take it as a benchmark,” said Siby Antony, chairman of Edelweiss Asset Reconstruction Company told the Economic Times, along with three other unnamed bankers who feared losing out on getting best price.
With lenders’ apprehension, the focus seems to be shifting to banks who might be incurring more losses after bank defaults, instead, on the long-term motive of the Ordinance at ensuring that there are fewer bank defaults by barring loans cheats from getting a backdoor entry in the business.
RBI’s Viral Acharya recently argued that before the IBC and in the absence of an effective, time-bound statutory resolution framework, various schemes were introduced by the Reserve Bank to facilitate viable resolution of stressed assets were cherry-picked by banks to keep loan-loss provisions low rather than to resolve stressed assets.