Skip to main content

Defaults are Costly: Bankruptcy Law Gives Lenders More Teeth

By
Lenders can bargain strongly on asset recovery, defaulting borrowers can lose control of co
With the Bankruptcy Act in place, banks can breathe easy, at least in the medium term, as corporate borrowers will now intensify their efforts to avoid loan defaults and the likely loss of management control of business, said Moody's Investors Service.
This will empower lenders to bargain strongly in matters of asset recovery, while borrowers can gain with lower borrowing costs after three-four quarters.
“The (defaulting) borrowers will lose control of the company as soon as the process is initiated,“ Srikanth Vadlamani, vicepresident, Financial Institutions Group, Moody's Investors Service, told ET from Singapore.“This, in itself, should act as a key incentive for them not to default in the first place.“
A few weeks ago, the government passed the Bankruptcy Bill, introducing a time-bound settlement process against loan default. With the Bankruptcy Act, the resolution process-from the date of filing cases to the final resolution--will take a maximum of 270 days, with three-fourth of the total lenders agreeing to drag a defaulting borrower to court. In India, it takes 4.3 years to resolve such cases, data from World Bank shows, compared with six months in Japan, eight months in Singapore and 1.5 years in the US.
The new bankruptcy code is credit positive for Indian banks because it will vastly increase their bargaining power vis-à-vis debtors in distressed asset resolutions, Moody's stated in the note.
Borrowers too can gain from it, subject to proper implementation mechanism, and if they are disciplined to repay dues.
“If properly done (implementation), it should definitely lead to a decline in credit cost over the medium term,“ Vadlamani said.
He, however, warned that the Bankruptcy Act is unlikely to be a banking panacea immediately, and everything may not be a cakewalk.
The Economic Times New Delhi, 27th May 2016

Comments

  1. John Barness6 June 2016 at 15:23

    In my experience, legislation processes organized by virtual data rooms are easier to conduct. I got one at virtual data room cost comparison and still have my work well done.

    ReplyDelete
  2. WUGI26 February 2019 at 19:20

    Having studied all online casinos realized that well best live casino the best of the best. my criterion is honesty online casinos

    ReplyDelete

Post a Comment

Popular posts from this blog

Household debt up, but India still lags emerging-market economies: RBI

By
  Although household debt in India is rising, driven by increased borrowing from the financial sector, it remains lower than in other emerging-market economies (EMEs), the Reserve Bank of India (RBI) said in its Financial Stability Report. It added that non-housing retail loans, largely taken for consumption, accounted for 55 per cent of total household debt.As of December 2024, India’s household debt-to-gross domestic product ratio stood at 41.9 per cent. “...Non-housing retail loans, which are mostly used for consumption purposes, formed 54.9 per cent of total household debt as of March 2025 and 25.7 per cent of disposable income as of March 2024. Moreover, the share of these loans has been growing consistently over the years, and their growth has outpaced that of both housing loans and agriculture and business loans,” the RBI said in its report.Housing loans, by contrast, made up 29 per cent of household debt, and their growth has remained steady. However, disaggregated data sho...
Post a Comment
Read more

External spillovers likely to hit India's financial system: RBI report

By
  While India’s growth remains insulated from global headwinds mainly due to buoyant domestic demand, the domestic financial system could, however, be impacted by external spillovers, the Reserve Bank of India (RBI) said in its half yearly Financial Stability Report published on Monday.Furthermore, the rising global trade disputes and intensifying geopolitical hostilities could negatively impact the domestic growth outlook and reduce the demand for bank credit, which has decelerated sharply. “Moreover, it could also lead to increased risk aversion among investors and further corrections in domestic equity markets, which despite the recent correction, remain at the high end of their historical range,” the report said.It noted that there is some build-up of stress, primarily in financial markets, on account of global spillovers, which is reflected in the marginal rise in the financial system stress indicator, an indicator of the stress level in the financial system, compared to its p...
Post a Comment
Read more

Healthy balance sheets augur well for economy: RBI Governor Sanjay Malhotra

By
  Large tariffs by the United States administration and elevated geopolitical risk have increased near-term global financial stability risks, and along with weather events pose downside risks to domestic growth, Reserve Bank of India(RBI) Governor Sanjay Malhotra said in the foreword to the Financial Stability Report released today.Noting that domestic growth momentum is buoyed by strong domestic drivers, sound macroeconomic fundamentals and prudent policies, Malhotra said: “External spillovers and weather-related events could pose downside risks to growth.”On the other hand, he said the outlook for inflation is benign, and there is greater confidence in the durable alignment of inflation with the Reserve Bank’s target.Commenting that the structural shifts reshaping the global economy are making policy intervention challenging, the Governor emphasised the need for central banks and financial sector regulators to remain vigilant, prudent and agile in safeguarding their economies and...
Post a Comment
Read more