Unable to accept 95% haircuts for banks under IBC: Sitharaman

FM urges resolution professionals and the Insolvency Board to meet the new challenges of global turmoil

FM urges resolution professionals and the Insolvency Board to meet the new challenges of global turmoil

It is unacceptable for banks to take a heavy haircut on loans that go through the resolution process under the Insolvency and Bankruptcy Code (IBC), Finance Minister Nirmala Sitharaman said on Saturday, calling for greater efforts by resolution (RP) professionals to avoid fingers being pointed at such transactions.

The minister also requested action from the Indian Board of Insolvency and Bankruptcy (IBBI) for early identification of growing stress in some businesses due to the ongoing global disruptions and demanded an assessment of the reasons behind the d ‘pre-packaged insolvency packages approved by Parliament for small businesses were yet to find traction.

“The resolution value needs to stand out so that no one can point fingers and say, ‘oh my god, look at the banks. They took that kind of haircut…is that okay?” she said at the sixth annual IBBI day, noting that she was faced with such questions every time she spoke about amendments to the IBC in Parliament.

“The first question is, haven’t the banks been beaten up? Didn’t they get a super high haircut? Can IBC do? These are questions from honorable parliamentarians and I must answer them all,” she noted to highlight why resolution professionals’ attempts to maximize value and deliver a good resolution package “count every bit” .

“I can’t afford to apologize, a 95% haircut for the bank is the best resolution I can give you. Impossible. Is that what we are capable of? she asked. While conceding that some cases can be “so pathetic” that only an “undesirable value” can be derived, she indicated that this could not be a feature of IBC or PR capabilities.

Seeking to pay more attention to “systemically important” companies that are “very critical to the economy”, the minister said the IBC and IBBI were created before the COVID-19 pandemic, so that the external environment had changed significantly since then, triggering greater disruptions. and stress and affecting business health.

“A lot of companies are facing new, worse situations: they’re solvent, they’re functioning, but global disruptions that have nothing to do with us in this country, that have nothing to do with our legal framework or our institutional mechanisms, also leads to a situation where many banks themselves are wondering how they are going to get things done with regard to their customers and the distress that some of their customers have started to feel,” Ms Sitharaman said.

“Early resolution, early highlighting of distress and therefore because distress is highlighted earlier, asking for help is something that should become part of our mindset. I’m not talking about an apocalyptic day, only those companies that are few in number but can experience such a situation for which quick and early detection and help would help us know how to deal with it if there were to be. a few more businesses,” she pointed out.

Calling on regulators to keep their “ears to the ground”, she explained that many companies were tied to their global counterparts or group companies and that even smaller companies depended on foreign players for certain technologies or capital.

IBBI should be kept ‘on its toes’ so that they are aware of the interventions needed. “This is a very critical area for the Indian economy. We cannot afford to have wind-ups or early stress warnings coming in unnoticed,” she concluded.

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