Bankruptcy Act a Perfect Recovery Tool for Banks

SAPAN GUPTA National Practice Head Banking & Finance, Shardul Amarchand Mangaldas
Implementation of the existing legal provisions is crucial to pun ishing errant promoters, who had defaulted on bank loans, said Sapan Gupta, National Practice Head, Banking & Finance, Shardul Amarchand Mangaldas, a large legal firm. The Bankruptcy Act is going to be the most effective recovery tool in a time-bound manner for banks grappling with bad loans, Gupta told Saikat Das. Edited excerpts:

What needs to be done to punish errant promoters who defaulted on bank loans?

It has long been articulated that a swift legal process will go a long way, both as a resolution tool and a deterrent, when it comes to errant promoters. However, even the existing provisions are fairly adequate to deal with a many such instances. For instance, the wilful defaulters' provisions of RBI limit the capacity of such promoters and their other companies to do business. Enactments such as SARFAESI attempt to make it easier to enforce collateral. SDR and S4A of RBI are aimed at change of errant managements. Legal action for criminal misconduct is available, albeit subject to delays endemic to our legal process.The crux of lies in the implementation of the provisions. While the provisions exist, they are not administered with either the rigour or speed with which they should be.

Will Bankruptcy Act help the banking industry?

Yes, Bankruptcy Act will not only help the banking industry but industry in general. For the banking industry, it has the potential to be one of the most effective recovery tools in a time-bound manner.

It will also create interest in distress asset sector from foreign equity funds. The Act also permits operational creditors to initiate bankruptcy action which will bring discipline in payments by corporates to their operational creditors. The bankruptcy law will force all parties to highlight prob lems promptly and seek redressal resolution in the timely manner, which is critical to all financial matters.

Are Indian banks prepared to implement the law?

This law provides a new approach to accounts in default. Even if a lender is not initiating the resolution process, the lender may have to respond to the resolution process initiated by any other lender (or borrower). So, the bank may be dragged into the process. This requires a high degree of preparedness by banks, and they are required to act swiftly. Banks are taking the code seriously, and are preparing for it.

Critics say bankruptcy implementation is a challenge. Do you agree?

Every implementation has its own challenges, so does the Bankruptcy Code. The internal infrastructure for lenders, availability of resolution professionals, valuers, accountants, lawyers and most importantly, NCLT infrastructure -all these require serious commitment by all stakeholders. We are seeing the political will in speedy legislative approval, and feedback has been positively received by the Insolvency and Bankruptcy Board of India (IBBI). It will take about a year for the Code's implementation to settle down but a lot is being done.
Has NCLT delivered results?

NCLT is in its nascent stage -setting up of commercial tribunals itself is a welcome step. We have 11 functional NCLT courts. In the short time they have been in existence, NCLTs are trying to respond quickly. We are certain that infrastructure will be increased.It is too early to expect results.

What's latest fund-raising trends do you see among Indian entities?

The financing space is not in an innovation mode currently. We continue to see lots of activity in real estate financing, and digital or mobile banking. We are seeing some activity in financing for solar and road projects.

Business Standard New Delhi,29th March 2017

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