 "BIFR outlived its utility; needs to be shut down")
BIFR, set up under the the Sick Industrial Companies (Special Provisions) Act, 1985, has been operational since May 1987. Bankers say through the past few years, several new fora have been set up to deal with industrial sickness. These, including the corporate debt restructuring cell and the joint lenders forum, are more effective in debt recast and the number of cases referred to the BIFR has seen a sharp fall, they add.
“Promoters often resort to the BIFR to delay the recovery process. Today, there are new mechanisms available to deal with a company facing cash-flow problems. BIFR has outlived its utility,” said a senior official at a public sector bank involved in discussion with the ministry.
To abolish the board, the Act has to be repealed.
The central bank and the government are putting in place suitable changes in norms to deal with errant promoters. Recently, RBI had issued norms to deal with non-cooperative borrowers. Through these, banks are disincentivised to extend further lending to such borrowers.
To deal with wilful defaulters, the government is planning to amend the Debt Recovery Tribunal and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Acts.
According to the BIFR website (which has data till 2010), the number of cases referred to it fell to 43 in 2010 from a high of 559 in 2002. By contrast, 647 cases had been referred to the corporate debt restructuring cell till December 2014.
The primary objective behind setting up BIFR was determining unhealthy trends, and expediting the revival of potentially viable units and closure of unviable ones. The Sick Industrial Companies (Special Provisions) Act, 1985, was applicable to companies whose accumulated losses were more than the net worth.
At a recent two-day retreat of bankers and finance ministry officials, bank officials highlighted the need to do away with the BIFR, which ministry officials cited as an “action point”.
According to latest data, the number of cases referred to agencies such as Lok Adalats, debt recovery tribunals and under the Sarfaesi Act increased 78 per cent to 1.86 million in 2013-14.
However, only 18 per cent of the amount was recovered, against 22 per cent the previous year.
In FY14, banks took legal recourse to recover Rs 1.74 lakh- crore, compared with Rs 1.05 lakh-crore the previous year, an increase of 64 per cent.
On the other hand, gross non-performing assets in the banking system accounted for 4.5 per cent of gross advances as of September-end 2014, against 3.4 per cent in March 2013.
Bankers have pointed to the need for a bankruptcy law (in line with Chapter 11 in the US). The proposal has been backed by RBI Governor Raghuram Rajan.
“We need new institutions such as bankruptcy courts and turnaround agents...The government is working on a new bankruptcy law. Properly structured, this will help bring clarity, predictability and fairness to the restructuring process,” Rajan said in a speech in November 2014.