India tightened its fledgling insolvency and bankruptcy code (IBC) on Thursday, potentially barring owners of 12 of the country’s biggest loan defaulters from bidding to buy back their assets when they are auctioned as part of bankruptcy proceedings.
The government passed an executive order that aims to “keep out such persons who have wilfully defaulted, are associated with non-performing assets (NPAs), or are habitually non-compliant and, therefore, are likely to be a risk to successful resolution of insolvency of a company,” the corporate affairs ministry said in a statement.
Under the revised IBC rules, borrowers whose loan accounts are classed as NPA for a year or more will not be eligible to bid for the assets in bankruptcy proceedings, the ministry said.
The revised rules also bar wilful defaulters and associates of the defaulting borrowers from bidding for the assets, according to the statement.
In June, the Reserve Bank of India (RBI) ordered 12 of the country’s biggest loan defaulters to be forced into bankruptcy courts as it tries to cut the record $147 billion soured loans accumulated in the country’s banking sector.
Experts appointed to steer the companies through a possible sale or eventual liquidation have sought interest from potential suitors to take over the defaulter companies as part of the resolution process.
Media reports have said that in some cases, the companies’ erstwhile promoters, or the main shareholders, may be looking to bid for the companies again.
RBI has also asked banks to take nearly 30 more companies to bankruptcy proceedings if any other form of loan resolution does not take place by around mid-December.
Sajjan Jindal, chairman of JSW Group who had lobbied against big defaulters who wanted to bid for their own insolvent assets, welcomed the move. “This will facilitate healthy competition in maximising value to lenders which is in the public interest,” Jindal said in a post on Twitter.
His company JSW Steel Ltd, in which Japan’s JFE Holdings Inc has a stake, is preparing to jointly bid with the Japanese company for the assets of insolvent Bhushan Steel Ltd, sources told Reuters this week.
Rajnish Kumar, chairman of top lender State Bank of India, said on Thursday the bank expected considerable interest from investors other than the promoters or major shareholders for the assets in bankruptcy. (Live Mint News)
