Page 7 - A Literary Review / NPAs

even cover credit repayments!). extensions, the DRTs needed amount, and then some. Even
among which; metal, power & all to varying degrees of Though an effective mechanism
Even so, the Indian TBS reinforcement time and time assets like land & building aren’t
telecoms lead the pack. Projects successes. in rural jurisdictions, still, Lok
debacle wouldn’t have been this again. The SARFAESI Act dealt beyond the ARC gamut.
that first got derailed through Adalats are simply too wide for
unique (and rare in its miraculous with liquidity problems by The history of ARCs
good-old fashioned supply-chain 3.1.1. Judicial Measures their own good, overly broad in
evasion of crisis-spending enabling the creditor the right to meanwhile, can only be
and organisational inefficacies. their agenda with the
take control of secured assets described as rocky at best,
stagflations) simply because of And latter beat down back & A. Debt Recovery Tribunals responsibility to handle cases as
before turning towards the cyclical in their progression with
the deontologically dual- blue by the GFC shake-up (DRTs), 1993 far and wide as an matrimonial,
judiciary. And the IBC of 2016 an early 2010s boom barrelling
hammering of the overleveraging followed on by the staggering family law and even criminal
gave further prerogative and into 2015 regulation slowing
boom & GFC. GFC was a
devaluation of the Indian rupee, Judicial vehicles designed cases; functioning as alternate
muscle to swing in bankruptcy down NPA conversion for good.
doomsday drop for more
which spiralled out of bounds to specifically to “facilitate the dispute settlement platforms. Too
cases as well as unlimited The 2014 RBI “Framework for
economies than one, and even a
more than a 50% drop from 40 debt recovery involving banks wide to have any teeth in
liability partnerships’ equations. Revitalizing Distressed Assets in
few decades in retrograde, the
INR to a dollar, to 60+. All this and other financial institutions extensive cases of debt
Even so, like with every other the Economy” was a
1990s’ Japan had trudged through
made financing simply too costly, with their customers”. DRTs were settlement of any significant
cog of the judiciary machine, comprehensive overhaul
a lengthy TBS quicksand itself, smushing corporations under the set by the Recovery of Debts due prominence, which then get
DRTs too were simply delineating orderly intrusion in
followed by Korea in the 2000s. treacherous trinity of stressed to Banks and Financial elevated to the packed courts
overburdened with logistical and the somewhat grey areas of the
What differed for India
from burdensome inputs, derailed Institutions Act (RDBBFI, rolls right anyhow.
manpower terms, with exactly ARC business. However, the
however, was an uncannily
revenues, and finally the spiralling off the tongue), all the way back
just 39 present-day DRTs in limiting nature of later
conservative lending during the
finance costs itself. in the summer of ‘93. These C. Compromise Settlement, 2001
operation, as well as exactly 5 amendments withing this
boom that didn’t in itself
Even so, growth stood specific directives take
DRATs. Making urban DRTs fast framework became a major
overleverage corporates to begin
tenaciously unwavering, waning precedence over Civil Procedure A further simplified and
overfilling through the brim, stumbling block for the
with, rather it was the protracted
here or there by a teensy bit, but Code (CPC) to ameliorate and specialized legal framework for
dragging their success rates flourishing ARCs. The whole
evergreening leniency of covering
not tumbling into a grinding halt. provide effective restitution to dealing with cases below 10
through the mud. Failed sector witnessing its first
for production inefficacies that
A strange dichotomy mostly recovery grievances in cases of crores, but again right back to
coddled the indebted firms far statistics then pop up illustrating slowdown followed by
attributable to the pre-existing non-repayments, which before DRTs only, which as discussed,
beyond acceptable limits. Though the full breadth of failures, with constrained NPA conversion for
lack of foundational the 1993 implementation would had serious frailties.
arguably speaking, that very Rs. 93,477 crores of total debt- years to come, all the way until
infrastructure, to which even take ages trudging through the
accommodative nurturing by the valuation in filed cases in the enigmatic infusion of the
incremental injections held great civil court machinery. Its central "The history of ARCs
PSBs was the magic wand that FY/2015, only about Rs. 32,237 Insolvency & Bankruptcy Code of
prominence in ploughing tenet was to bring speedy meanwhile, can only be
helped curb any crisis-inducing crores were disposed of. 2016. IBC too was often at odds
productivity onwards. All this resolution to debt-specific described as rocky at
winding ups, displaying a weird Followed by Rs. 88,974 crore with SARFAESI becoming a
cursory sheen giving off the vibe disputes for banks & other best, cyclical in their
flex of bankruptcy-phobia. worth of cases in FY16 of which tripwire for ARC’s smooth
of economic wellbeing, and financial institutions with their progression with an early
In classic Indian fashion, only, again, only Rs. 31,215 crores functioning, particularly in
without adverse economic customers, cases of which were 2010s boom barrelling into
deadlines were pushed with the of cases were disposed of. regards to the debt vs. equity
headwinds or obvious red flags, mounting all the way even in the 2015 regulation slowing
banks allowing stressed Unable to cope up with the full question. We’ll circle back to the
banks felt little onus upon their 80s & the 90s (being a down NPA conversion for
corporations extended debt- onslaught of incoming cases by particulars of ARCs later down
lazing prerogative to diligently contributing factor in the severe good".
indulgence time after time in the hardly a third, increasing the this analysis.
access the real state of their crunch of ’91, though far from a
hopes of long-term viability by discrete number of DRTs also
borrowers’ plummeting projects, definitive one). In their present D. SARFAESI Act, 2002
letting off the steam. With round provided barely making any E. Insolvency & Bankruptcy Act,
to peruse under the carpet. state, DRTs (and DRATs, Debt
after round of restructuring, further inroads. 2016
Recovery Appellate Tribunals) A landmark instrument. SARFAESI
nearly 6.4% (2014-2015) of the
3.1 Saviour of the Syndicate take on cases with disputed loan aimed to revolutionize the debt
entire outstanding mass within a They were further ineffective in “The king of good times”, a title
And that’s where we circle amounts crossing the pecuniary resolution system, and it did so,
single fiscal year at times, leaving dealing with stalling tactics or encompassing merely 5 short
back to the RBI actions and limit of a 20-lakh threshold from in two dimensions. First was
stressed assets suspected to be even the legal complexities of words enough to send pangs of
regulatory overreaches carried 2018 onwards (up from 10 lakhs through the enablement of the
even higher than what the 9% dealing with extended cases of wrath down the spines of
out to curb this pent-up previously). creditor to rightfully confiscate in
NPA figure would lead one to fraud and misrepresentation, enraged bankers and aviation
cataclysm? The most defining usurpation of the security asset
believe. aspects all to prevalent in debt employees alike. That entire
feature of the now nearly a Furthermore, the Securitization & of the delinquent borrower,
non-repayment cases. All these plane-wreck of the Mallya-n
decade-and-a-half long NPA Reconstruction of Financial auctioning it off even before
3. HISTORICAL ACTION chinks in their armor culminated debacle was a death knell for
campaign has been the sheer Assets and Enforcement of judicial approaches. Followed by
in the passover of outstanding banking complacency on
extent of its variegated spectrum Security Interest Act (SARFAESI, the historical establishment of
Before exploring the aftermath litigation over to the freshly corporate prop-ups & bailouts.
of measures spreadeagled two syllables only) covered later the very first Asset
however, it’s worth exploring the formed Direct Tax Vivaad se But more conclusively, it was the
across all three sides of the on in this report, also flows into Reconstruction Company (ARC)
justifications for such a risky Vishwas Bill, of early 2020. nightmarish wakeup call for the
governmental ambit: Judicial, this platform. The DRT structure of India, namely, ARCIL.
bargain. Which, like stated bankruptcy maze of judicial red
Administrative as well as usually consists of a “Presiding ARCs as is widely understood,
before, lies with the peculiarities Another martyr in the hall of tape and labyrinthine byzantine
Executive Economics, from Officer” appointed straight by are in the business of buying up
of the Indian-way of business. The infamy of a struggling judiciary. overlap of antithetically
regulative action to liberalized the central govt. Which makes bad loans. They are specialists in
2000s heyday of investment divergent legislations, at odds
ideals, lender-side reform as well their judgements via “Order and handling the bidding of undercut
booms saw investment B. Lok Adalats with itself.
as borrower-side reform. There’ve Recovery Certificates” specifying “fair” prices at an arm’s length
proportions as high as 38% of the This was intermingled with the
been comprehensive overhauls of the owed amount and passing it for recovered security assets as
GDP, the major chunk of it These “People’s Courts” function ongoing discussion of enacting a
every imaginative means possibly, on the recovery officers to follow well as securitizations which are
funnelled through heavy works of at a pre-litigation level on a comprehensively unifying code
fully exhausting the innovative their protocols. then repurposed and sold off for
infrastructural undertakings, panchayati level, settling remote for amending a lengthy palette
gamut of economic intervention, Fraught with bureaucratic profit in a bid to recover the sunk
#01 DRAFT VERSION
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