Letter to BS: Insolvency and Bankruptcy Code needs firm backing

The government and the RBI have rightly introduced the IBC, which is working slowly but surely in the resolution process

This refers to “Wilful blindness about the main cause of bad loans” (July 23), it is well known that reckless lending by public sector banks (PSBs) during the second tenure of the previous government led to the problems being faced by these entities. This happened due to political interference, corporate pressures, corruption and the technical inability of the PSBs to judge the viability or the lack of it in power, steel, textile and infrastructure projects among other reasons. The collateral taken was too little and much of it was encumbered. A fair amount of these loans were diverted to unconnected businessses by promoters. Once these loans started to become stressed assets/ NPAs, then started the process of evergreening by granting ad-hoc loans and fresh loans by the boards of PSBs. The various forbearance schemes unwittingly facilitated this process. Now, after the asset quality review (AQR), we know the real enormity of the NPA problems of the PSBs. The government and the Reserve Bank of India have rightly introduced the  Insolvency and Bankruptcy Code (IBC), which is working slowly but surely in the resolution process. 

I fail to understand why the writer is critical of the IBC, fully knowing the present situation and the earlier absence of adequate laws to deal with insolvency and bankruptcy. Criticising well-meaning and well-thought out processes without suggesting viable alternatives doesn’t help matters. As far as accountability is concerned, PSBs have initiated inquiries against culpable staff while investigating agencies have filed criminal cases where there is deliberate and malafide action. The writer is inexplicably silent on the dire need for substantive reforms of PSBs, especially in the area of governance. 

Arun Pasricha, New Delhi 

Letters can be mailed, faxed or e-mailed to: 
 

The Editor, Business Standard

Nehru House, 4 Bahadur Shah Zafar Marg 

New Delhi 110 002 

Fax: (011) 23720201  ·  E-mail: letters@bsmail.in

All letters must have a postal address and telephone number