Page 53 - BANKING FINANCE JANUARY 2016 ONLINE

FEATURE

Substantive issues exist with even initiation of insolvency court, which would re-examine the recommendation and
resolution or the process of winding up. SICA is triggered might even reverse it.
when more than half a company’s net worth has eroded.
In Kristin van Zwieten’s paper titled: Corporate rescue in With the proposed IBC, the labyrinth of extant Indian laws
India: the influence of the courts, she examined over a dealing with corporate insolvency are being replaced by a
thousand cases from a range of courts to demonstrate single comprehensive law that (a) empowers all credi-
that the Board for Industrial and Financial Reconstruction tors—secured, unsecured, financial and operational to
(BIFR) and the high courts are reluctant to liquidate trigger resolution, (b) enables the resolution process to
unviable companies. start at the earliest sign of financial distress, (c) provides a
single forum overseeing all insolvency and liquidation pro-
Ironically, the trigger for winding up a company is too low. ceedings, (d) enables a calm period where other proceed-
The default is Rs.500. Courts, therefore, do a full hearing ings do not derail existing ones, (e) replaces existing man-
on merits at admission stage itself, limiting efficacy. Credi- agement during insolvency proceedings while keeping the
tors, especially non-banks, do not have access to a mecha- enterprise as a going concern, (f) offers a finite time limit
nism to assess the viability of an enterprise and address within which debtor’s viability can be assessed and (g)
the problem, without the threat of other proceedings ini- under bankruptcy, lays out a linear liquidation mechanism.
tiated by the debtor or other creditors torpedoing them.
Even when proceedings are triggered, debtor’s existing The proposed framework strengthens creditors, without
management retains control, thereby creating the risk of discrimination. While this will not necessarily be a magic
asset stripping. bullet that will make the mass of NPAs vanish from bank
balance sheets, it can facilitate better recovery and faster
Under SARFAESI, creditors are empowered to take over closure of troubled assets. IBC will prevent new loans from
management of a company but only that part of the com- getting added to existing stock of NPAs.
pany connected to the secured asset. Since potential liabil-
ity to creditors is high, this is rarely invoked. It will aid development of alternative debt securities,
spread the risk of corporate failure across larger sets of
There is no corresponding provision for non-banks. There creditors, and lead to the double benefit of lower systemic
is also no linearity of proceedings. Under SICA, even if BIFR risk as well as deeper debt finance for a rapidly growing
recommends liquidation, a reference is made to the high economy of entrepreneurs. (Source : Mint)

EXIM Bank to give concessional loans for overseas projects

In a bid to make domestic firms globally competitive, Exim Bank will provide concessional finance to Indian companies
bidding for strategically important infrastructure projects abroad. "The Union Cabinet chaired by Prime Minister
Narendra Modi has given its approval to a scheme to enable EXIM Bank to offer concessional finance to support Indian
companies bidding for strategically important infrastructure projects abroad," Communication and IT Minister Ravi
Shankar Prasad said. He further said the strategic importance of a project to deserve financing under this scheme will
be decided on a case by case basis by a committee chaired by Department of Economic Affairs Secretary (DEA) and will
have members from Department of Expenditure, Ministry of External Affairs, Department of Industrial Promotion and
Policy, Department of Commerce, Department of Financial Services and Ministry of Home Affairs.

The Deputy National Security Adviser will also be a member on the committee. According to an official statement, the
committee will also consider financing strategic projects through Public Sector banks other than EXIM Bank on the
same terms. "The committee may insist on sourcing of at least 75 per cent of the project requirements from India, if
it is found compatible with the requests for bids. The experience with this scheme will be evaluated after two years,"
the statement added.

BANKING FINANCE | JANUARY | 2016 | 53

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