<p>Arcelor Mittal, the world’s largest steel conglomerate, announced the Rs 42,000-crore acquisition of Essar Steel through the insolvency and bankruptcy resolution process. After a tortuous two-year process of appeals and counter-appeals, the Mittals along with their Japanese joint venture partner, Nippon Steel, took charge of Essar Steel’s assets through a 60:40 partnership. This is the largest stressed business sale completed so far by the National Company Law Tribunal (NCLT). The biggest systemic gainers from it are the banks, led by SBI and ICICI, which have taken minimal haircuts. Given that the world’s largest and second-largest steel companies have set foot in India through the Essar Steel acquisition in itself sends out a positive signal to investors globally. The much-publicized shortcomings in the Insolvency and Bankruptcy Code (IBC) notwithstanding, the resolution process has worked. It’s not a solitary case of bankruptcy resolution, either. State-run NBCC will take charge of JP Infratech that owes Rs 23,376 crore to banks and 22,000 home buyers who have been classified as creditors.</p>.<p>These two large resolutions signify a distinct shift in the way India looks at non-performing assets (NPA) of banks and genuine business failures reported by the corporate world. While wilful defaulters have to be exposed and punished, Indian businesses that suffered genuine business failures had to find an exit route. The IBC has helped do just that. Amidst other depressing numbers on the economic front, the IBC resolution process seems to be the one big reform measure that will help banks, companies and even home buyers. The NCLT is in the midst of resolving 72 large cases in which banks have exposure of over Rs 3.8 lakh crore. A fresh set of cases, with exposure of Rs 3 lakh crore may come the NCLT’s way following a Reserve Bank of India order asking banks to settle with companies, make additional provisioning of upto 20% or refer them to the tribunal under IBC by January 7.</p>.<p>The New Year may see a clutch of cases getting through the NCLT following recent changes to the IBC. Ring-fencing new promoters from financial crimes committed by earlier managements would encourage genuine businesses to bid for stressed assets, increase competition and lower the haircut for banks. While this process is on, bringing back wilful defaulters who have fled the country would send out a strong message. Also, the government and the RBI must reach a consensus on defining NPA. Also, should banks be allowed to harass genuine businesses with an otherwise good track record on repayments even on one day’s delay after the 90-day margin? Also, shouldn’t banks’ boards take responsibility for their businesses rather than depending on the resolution process?</p>
<p>Arcelor Mittal, the world’s largest steel conglomerate, announced the Rs 42,000-crore acquisition of Essar Steel through the insolvency and bankruptcy resolution process. After a tortuous two-year process of appeals and counter-appeals, the Mittals along with their Japanese joint venture partner, Nippon Steel, took charge of Essar Steel’s assets through a 60:40 partnership. This is the largest stressed business sale completed so far by the National Company Law Tribunal (NCLT). The biggest systemic gainers from it are the banks, led by SBI and ICICI, which have taken minimal haircuts. Given that the world’s largest and second-largest steel companies have set foot in India through the Essar Steel acquisition in itself sends out a positive signal to investors globally. The much-publicized shortcomings in the Insolvency and Bankruptcy Code (IBC) notwithstanding, the resolution process has worked. It’s not a solitary case of bankruptcy resolution, either. State-run NBCC will take charge of JP Infratech that owes Rs 23,376 crore to banks and 22,000 home buyers who have been classified as creditors.</p>.<p>These two large resolutions signify a distinct shift in the way India looks at non-performing assets (NPA) of banks and genuine business failures reported by the corporate world. While wilful defaulters have to be exposed and punished, Indian businesses that suffered genuine business failures had to find an exit route. The IBC has helped do just that. Amidst other depressing numbers on the economic front, the IBC resolution process seems to be the one big reform measure that will help banks, companies and even home buyers. The NCLT is in the midst of resolving 72 large cases in which banks have exposure of over Rs 3.8 lakh crore. A fresh set of cases, with exposure of Rs 3 lakh crore may come the NCLT’s way following a Reserve Bank of India order asking banks to settle with companies, make additional provisioning of upto 20% or refer them to the tribunal under IBC by January 7.</p>.<p>The New Year may see a clutch of cases getting through the NCLT following recent changes to the IBC. Ring-fencing new promoters from financial crimes committed by earlier managements would encourage genuine businesses to bid for stressed assets, increase competition and lower the haircut for banks. While this process is on, bringing back wilful defaulters who have fled the country would send out a strong message. Also, the government and the RBI must reach a consensus on defining NPA. Also, should banks be allowed to harass genuine businesses with an otherwise good track record on repayments even on one day’s delay after the 90-day margin? Also, shouldn’t banks’ boards take responsibility for their businesses rather than depending on the resolution process?</p>
