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3. Passing of the Insolvency and Bankruptcy Code, 2016
Bankruptcy is the term for when an individual is declared bankrupt by the Court because they are insolvent. People go bankrupt for two reasons; one is if their assets are less than their liabilities (so they owe more than they own) the second is where they are unable to pay their debts when they fall due.
Passing of Insolvency and Bankruptcy Code was an extremely important move & was the need of the hour, though successive governments were late to introduce this as a key banking measure. Non-performing assets have remained a major concern for India’s economy, they have grown from Rs 2.52 lakh crore in March 2014 to Rs 9.62 lakh crore as of March 2018. In dollars, non-performing assets make up more than $150 billion, of which nearly 90 percent is held by public sector banks. The noose around NPA’s can only be tightened only with the help of measures by way of – ‘Declaration of Insolvency & Bankruptcy code’, which acts a notifier to banks to refrain from extending further lending to individuals marked under the radar of insolvency.
Key Benefits of Insolvency include – The Bill also prohibits certain persons from submitting a resolution plan in case of defaults. These include: (i) wilful defaulters, (ii) promoters or management of the company if it has an outstanding non-performing debt for over a year, and (iii) disqualified directors, among others. Further, it bars the sale of property of a defaulter to such persons during liquidation.
This is the best economic measure, Kudos to the government for its introduction. Remember, this is not an easy policy to introduce, this comes with lot of repercussions by way of naming & shaming disloyal capitalists.
– Article by Suman Adithya Rao (SEBI Certified Research Analyst, Management Graduate in Entrepreneurship & Small Business Management)
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