
The feats & failures of IBC: Why it must change
With a debt recovery of 20% and liquidation of 29.7% cases, five years on, the Insolvency & Bankruptcy Code is hurting banks, businesses and the economy.
With a debt recovery of 20% and liquidation of 29.7% cases, five years on, the Insolvency & Bankruptcy Code is hurting banks, businesses and the economy.
Aided by strong demand recovery, credit ratio rebounds to 1.33 in H2FY21, from 0.54 in H1FY21. GDP could grow at 11% in FY22, but the resurgence in Covid-19 cases is a key downside risk, says CRISIL.
According to a BofA Securities report, the Covid-19 shock could delay India touching the GDP of Japan by three years. In their latest estimates, it will now happen by 2031 if the economy grows at 9%.
Asset reconstruction companies (ARCs) were set up in India to solve the NPA problem. India's 29 ARCs are a reflection of the success of the ecosystem in alleviating the stressed asset challenges.
While Indian banks' improved financial metrics do not fully reflect the impact of the Covid-19 pandemic, the under–capitalised PSBs are likely to remain risk averse and lose market share.
Apart from recapitalisation, public sector banks get a shot in the arm in the form of ARC and AMC mechanisms to clean up their books.
There is a need to make the insolvency system more robust, and the revival mechanism swifter and more efficient. The Budget 2021 may provide a way forward.
According to the RBI, the gross NPA ratio of all scheduled commercial banks may increase from 7.5% in September 2020 to 13.5% by September 2021, and even escalate to 14.8% in severe stress scenario.
With Lakshmi Vilas Bank in its fold, the foreign bank’s branch count jumps over 18 times. But the merger could also open up a potential Pandora's box.
The extension, which takes the total day-count of the lockdown to 54, will add to the challenges that the economy was already facing before Covid-19 took the shape of a pandemic.