Allowing as many high net-worth individuals and companies as possible to freely bid for stressed assets will prove to be beneficial in cleaning up non-performing assets (NPAs) of banks. The amended Insolvency and Bankruptcy Code (IBC)-related Ordinance promulgated by president Ram Nath Kovind would come up before Parliament in the Winter Session of Parliament. The IBC Ordinance is a bold move to preserve the sanctity of the bidding process for stressed assets of banks that have been referred by the Reserve Bank of India.
However, some of the provisions will have to be tweaked for making the auctions transparent and above board. At the same time, the bidding process will have to attract competing individuals and companies to buy up the assets. For this to happen, corporate guarantors of stressed assets cannot be prevented from participating in the auctions. Secondly, promoters willing to cut a deal with banks in cases where genuine business failures have happened should be encouraged. Thirdly, the Ordinance cannot have any provisions that may allow wilful defaulters go scot-free while banks have to take the fall for them.
Reports suggest that the government may move official amendments to the IBC Ordinance to enable promoters of small and medium enterprises (SMEs) also to participate in bids for stressed assets. This should, in fact, be the starting point for existing promoters to participate in the sale of assets. In cases where business failures were established beyond doubt, promoters’ participation will have to be made easy irrespective of a company’s size or a bank’s exposure level. At the same time, RBI must be empowered to bar wilful defaulters accused of laundering or siphoning off funds with criminal intent from buying stressed assets cheap.
The IBC Ordinance and related bill to be introduced by finance minister Arun Jaitley need to give enough headroom for RBI to take a call on all auctions, bidding criteria and related issues on a case-to-case basis. Given that 23 large stressed assets were being referred to the National Company Law Board (NCLT) for insolvency resolution, bidding norms will be the key to cleaning up the balance sheets of banks. Perhaps the government will do well not to leave the field open for competitors to bid for stressed assets of rivals at subdued rates. Unless ambiguity on assets sale and bidding norms is removed, resolving the large stressed assets imbroglio may turn out to be a non-starter. For instance, the deadline set for 28 large assets, where banks’ exposure was Rs 200,000 crore, was December 31. But, there has been no discernible progress in the cases approved for resolution by the RBI panel concerned. Besides, state-run, private and cooperative banks’ clean-up act must be kept above political posturing notwithstanding the fact that the UPA was largely responsible for the collapse of the banking system.
Sweetheart deals with political interference marked the approval of loans by banks to certain companies. Prime minister Narendra Modi made it a point to unequivocally designate these ‘mushy deals’ as scams. But, he should not forget the onerous responsibility he has to shoulder in resolving the banking mess. Pointing fingers at the UPA for scams of different hues and shades has been done for last few years. Deepening the schism with opposition parties, especially on the banking sector issues, may not help movement forward. Finding a meeting point with the opposition on banks clean-up coupled with laying down pragmatic bidding norms for auctioning stressed assets should be attempted right away. Ultimately, voters in states and parliamentary elections will judge prime minister Modi and his party on governance, delivery, transparency and clarity of purpose. Blame game must end and there is no alternative to performance.