The problem of NPA or Non Performing Assets becomes a major threat to the Indian economy. The way it sets an alarming precedent, the banks must find better and effective ways of recovery than relying on IBC or SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest).
If we look at the world ranking, then the situation in India is nothing less than terrible. The country ranks third amongst the big economies affected by bad loans.
The NPAs accumulated by Indian lenders is far higher than the top economies like the UK, the USA, Japan, and China.
Referring to the hard figures; the 2017 statistics indicate that the NPA of Indian banks was as high as 40 lakh crores.
In spite of the red flag issued by the RBI and the government and solutions like IBC implemented in 2016 (which was supposed to be a game-changer); the situation hasn’t changed much.
Faster recovery of bad loans is still a dream.
The government is reinstating section 396 with a hope of making the situation better. It is considered a superior recovery tool as compared to IBC and SARFAESI.
How will the situation change now?
Now, a defaulting company can be merged with other healthy company of the same group so that the assets can be used for settling down the debts.
Of course, the other company should be financially healthy to take this additional liability.
Experts say that this route is more effective and convenient as compared to IBC. There, the NCLT (National Company Law Tribunal) and DRT (Debts Recovery Tribunal) proceedings require a substantial haircut by the banks; which is, in turn a loss of the public money.
Voices against the concept
Not everyone is supporting the concepts. Some economists and finance lawyers feel that it is against the fundamental concept of an independent limited company.
Not everyone is supporting the concepts. Some economists and finance lawyers feel that it is against the fundamental concept of an independent limited company.
When two companies are merged just for the sake of recovering debts of the defaulter company, the rights of shareholders of the healthy company are not protected.
They have to take hit in spite of performing well which is not justified at all.
Experts feel that if it happens frequently, then people will hesitate in investing money.
The new reforms are getting implemented to improve the NPA ratio. However, it is essential to check all the aspects beforehand.