Last Resort

Heightened crony capitalism along with years of promoter-banker nexus are to blame for the mess that the banking system is today. The good news amid the rot is the Insolvency and Bankruptcy Code. Even though at this point in time, as the timeline for resolution of the first lot of cases comes to a close, the process is attracting a lot of criticism. 

No doubt, promoters and self-interest groups are using all kinds of tactics to derail the process, but anyone who thought that a process to recover nearly Rs.900,000 crore of bad loans will not create pandemonium must have been smoking something. 

While several cases do seem to be nearing closure, the best part of the code is really Section 29A, which rewards good behaviour and punishes bad. While regulation has always vested power with the banks, hand-in-glove bankers backed by their political masters have seldom acted against errant promoters. The real strength of this amendment will be tested when it is followed both in letter and spirit, and organisations are not allowed to game the system through nondescript companies camouflaging the real beneficiaries.

Since resolutions do seem to be taking longer than the stipulated time, there are two predictable responses from promoters: first, asking for more time and second, an argument highlighting the problems associated with liquidation. Yielding to these requests will be regressive.

Everyone including promoters, bankers and bidders need to act with urgency. That will happen only when the threat of cases being referred to the National Company Law Tribunal (NCLT) once a company defaults, and thereafter, the risk of getting into liquidation if a resolution plan is not worked out at NCLT, is for real. Any dilution in this stance will only weaken the process and compromise the outcome.

As for concerns over liquidation, as a nation we need to accept that companies can fail but they have to go through the pain and come clean. There’s really nothing easy about bankruptcy and the pain of job losses cannot be sidestepped. In the Mecca of capitalism, billion-dollar corporations have shut down paying the price for inefficiency, resulting in thousands of job losses. India will be no different where inefficient organisations will have to make way for better-run companies.