India’s Insolvency and Bankruptcy Code is quite a positive reform for the financial sector, especially for state-run banks heavily burdened with stressed assets, as it will give creditors a legal path for recovering their dues in a time-bound way, Japanese financial services firm Nomura said in a report.
“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,” said a Nomura research note.
“Overall, the Code is a very positive financial sector reform, whose benefits will be visible in coming years. It should make lenders more confident in lending and borrowers more accountable,” it said.
In view of the multiple laws dealing with insolvency in India which lead to delays, the Code will consolidate the existing framework and create a new institutional structure, Nomura added.
The report also said that if not in this session, the Code should be passed in the monsoon session of parliament that will follow a few months after the current Budget session ends on May 13.
“Its full implementation is expected to take time as the entire institutional structure needs to be established,” it said.
Following its passage in the Lok Sabha earlier this week, the bill will now go to the Rajya Sabha.
The Insolvency and Bankruptcy Bill, 2015 proposes to enact a single bankruptcy code and set deadlines for processing insolvency cases, thereby cutting down the time it takes to wind up a company or recover dues from a defaulter. It has proposed a timeline of 180 days, extendable by 90 more days, to resolve bankruptcy cases.
The code will provide a specialised resolution mechanism to deal with bankruptcy situations in banks, insurance companies and financial sector entities.