Need legislative change for group insolvency framework: RBI's Das
- The RBI Governor recently called for the establishment of a specified framework for group insolvency and the development of a vibrant market for stressed assets to enhance the functioning of the Insolvency and Bankruptcy Code (IBC).
- The IBC, 2016 is the bankruptcy law of India that consolidates and amends the existing laws relating to insolvency and bankruptcy.
Group Insolvency Mechanism
- The group insolvency mechanism has been evolving under court guidance due to the absence of a specified framework.
- Legislative changes are needed to lay down appropriate principles.
- Challenges in the group insolvency process include asset intermingling, defining a 'group,' and addressing cross-border aspects.
Vibrant Market for Stressed Assets
- The absence of a vibrant market for stressed assets limits the pool of prospective resolution applicants under the IBC.
- A robust secondary market for loans can be a crucial mechanism for managing credit exposures by lending institutions.
Recovery and Behavioural Shift
- Creditors have realised Rs 3.16 lakh crore out of the admitted claims of Rs 9.92 lakh crore as of September 2023, with a recovery rate of 32%.
- The RBI Governor emphasized that the most interesting outcome of the IBC has been the substantial behavioural shift ushered in by the code.
- This is evident in the withdrawal of 26,518 applications for initiation of Corporate Insolvency Resolution Process (CIRP) till August 2023.
Criticisms of IBC
- Time taken for resolution and the extent of haircuts in comparison to admitted claims.
- Delays in resolution processes
- 67% of ongoing CIRP cases exceed the total timeline of 270 days as of September 2023.
- Concerns over the conduct of Committees of Creditors, impacting the value of assets.
Prelims Takeaway
- Insolvency and Bankruptcy Code (IBC)
- Reserve Bank of India (RBI)