The insolvency and bankruptcy code is a very positive financial sector reform, especially for the banking sector, as it will give creditors a legal path for recovering their dues in a time-bound manner, says a Nomura report.
According to the Japanese financial services major, there are multiple laws dealing with insolvency in India which lead to delays. The Bankruptcy Code will consolidate the existing framework and create a new institutional structure, it added.
“India currently ranks 136 in the World Bank’s resolving insolvency ranking; it takes 4.3 years to resolve insolvency and the recovery rate (at 25.7 cents to a dollar) is very low. The Code will play a key role in improving the ease of doing business in India,” Nomura said in a research note.
The Code is also seen as a big positive for the banking sector, which is currently burdened with stressed assets. As the Code gives banks (creditors) a legal path for recovering their dues in a time-bound manner, “it should make lenders more confident in lending and borrowers more accountable”, Nomura added.
“Overall, the Code is a very positive financial sector reform, whose benefits will be visible in coming years,” it said.
It further noted that the “timelines are tight”, as the Budget Session ends on May 13. It will now be moved to the Upper House, where the ruling BJP-led government does not have a majority.
Nomura said that if not in this session, the Code should be passed in the Monsoon Session of parliament (July or August). “Its full implementation is expected to take time as the entire institutional structure (Board, IPs, IPAs, IUs) needs to be established.”
Insolvency and Bankruptcy Code Bill is “transformational building block” for the economy and there would be one law dealing with bankruptcy while doing away with at least 12 different legislations, some of which are centuries old. This will also make the whole process more “transparent”, Minister of State for Finance Jayant Sinha had said in Parliament.