Banks have to be aggressive to collect money from Lebhagu promoters ...

- More power to lenders under IBC continues to be seriously used

Under the Insolvency and Bankruptcy Code (IBC), the Centre's notification to recover money from company promoters has finally been upheld by the court, giving banks more power to recover money from defaulting companies and their promoters. Lenders were allowed to recover money from the promoter's assets if the company defaulted on the loan if the promoter had given a personal guarantee to the company through a 2012 notification from the Center. The flaws in the IBC were also exposed after it was introduced and the government and the RBI are working to sharpen the IBC. The notification was issued in November 2016 as part of this effort.

The notification was challenged in court by several promoters. However, after a year and a half of fighting, the Supreme Court has finally upheld it. Thus banks under IBC have got one more way to recover their stuck money.

In cases under IBC against defaulting companies so far, lenders have been able to recover only fifty to fifty-five per cent of their loan amount. Banks asking for huge haircuts (discounts) in the disposal of assets in the settlement process did not have a large amount in their hands. However, even after the sale of the company's assets, lenders will now be able to recover the remaining amount from the promoters, which has raised hopes that banks will recover a relatively large amount.

The ruling is now expected to see a credit culture among the company's promoters seeking loans from banks. The promoters will be worried that their assets will be snatched if the company does not give money to the banks. In any case, if the company defaults on repaying the loan and the company is prosecuted under IBC, it would not be wrong to say that the promoters who have given the guarantee will also try to get maximum money from the company's assets to the lending banks. Lending banks have started receiving money from defaulting companies in the process of recovering money from defaulting companies under IBC in 2014, but banks have to forget large sums of money from the money they lend.

It took more than a decade for the world to emerge from the 2008 financial crisis. But by then the Indian banks had lent money to industries to such an extent that it was becoming increasingly difficult for them to get it back. In the absence of strict legislation to recover money from defaulting promoters, banks began taking steps such as restructuring of loans, although they were not effective. Finally a strict law like IBC has been enforced.

IBC has been implemented in the country for the last five years but its effectiveness has not been as expected. Many defaulters are seen trying to evade refund of money from banks. The government's and banks' hopes of implementing the code will solve the problem of bad loans of banks and return billions of rupees to lenders stuck in companies, as bad loans are still more than 10 per cent.

Even before the IBC was enacted, there were long delays in recovering money from creditors who went bankrupt. Companies were constantly looking for loopholes in repaying the money, which took years for lenders to recover their money. It is true that the IBC process has created a panic in the minds of the borrowers as the process gets tougher, but this fear and slap is limited to those borrowers who want to stay inside the country and pursue their business. The government and the Reserve Bank will also have to make sure that borrowers like Alia-Mallya can no longer find a loophole. In several cases, it has come to light that Alya Mallya, who fled abroad after slapping the country's banks, was also allegedly accompanied by some bank employees. In such a scenario, even the lending banks need to be serious in withdrawing their money from the promoters.

It will be interesting to see in the coming days how much money banks can recover from defaulting companies and guarantor promoters based on government notifications. The success of the government's notification will be counted only when the process of its implementation can proceed in a timely manner. While IBC has provided banks with ample opportunities to recover their stuck money, banks also need to make full use of these opportunities and use the necessary energy. It would not be wrong to say that banks that use the provisions with sufficient strength will be able to recover more and more of their own money and have timely success in resolving the NPA problem.