Intensifying her attack on the opposition Congress as the last phase of the Lok Sabha Elections is coming close, Finance Minister Nirmala Sitharaman on Thursday said the Insolvency and Bankruptcy Code (IBC) helped banks recover from the NPA crisis created by the Congress government.
Taking it to social media platform X, praising the code, she said it was introduced by PM Narendra Modi-led Government in 2016, and played a key role in helping banks recover from the NPA crisis created by the Congress-led United Progressive Alliance (UPA) government.
“The IBC has played a key role in helping banks recover from the NPA crisis created by @INCIndia and its allies during the UPA year through ‘phone banking’ and indiscriminate lending,” she said.
Further lashing out at the Congress, she said, “Despite the crying need for enacting insolvency laws, the UPA regime consciously sought to reward its cronies at the cost of the banks and operational creditors who had to run from pillar to post for recovering their dues.”
Cites Governor, Ex-Governor, and World Bank
To upheld her claims, the minister cited RBI Governor Shaktikanta Das, and said, the governor had mentioned that the IBC has fundamentally transformed the credit culture in India, nudging debtors to settle their dues even before the initiation of insolvency proceedings.
She further cited the former Governor Raghuram Rajan-led Committee on Financial Sector Reforms in 2008, and noted,”…because of the delays (sometimes endless), the system prevents the reallocation of assets to their best use, and greatly wastes asset values of impaired debtors, to the detriment of the economy. Closing a business also takes a long time in India—on average 10 years in India compared to 1.7 years in China”
She also said that the World Bank, in its 2019 report, noted that India’s 2016 insolvency regime reform increased creditor recovery rates from 26.5 to 71.6 cents on the dollar, making India ‘by far the best performer in South Asia’ and surpassing even the average recovery rate of OECD high-income economies.
“The shift towards more responsible credit behaviour is evidenced by the withdrawal of over 28,800 applications involving defaults exceeding Rs 10 lakh crore before their admission (March 2024),”she said.
IBC vs BIFR: Sitharaman’s comparison
She highlighted the Board of Industrial and Financial Reconstruction (BIFR) regime introduced in 1987, and said the erstwhile BIFR resolved less than 3,500 cases in the nearly 30 years since its inception.
However, in contrast, from its inception in 2016 until March 2024, the IBC has rescued 3,171 distressed companies and assisted in the shutdown of unviable firms.
Substantiating her claims with some data points, the minister said, Notably, 40% of the resolved companies were previously inactive, showing its ability to revive stagnant businesses.
Overall, an amount of Rs 3.36 lakh crore has been recovered by creditors, which is around 32% of what was claimed and 162% of the liquidation value.
On average, resolution plans are yielding about 85% of the fair value of the distressed companies. This recovery has helped creditors provide additional credit, thereby promoting economic development, she added.
