Bad loans: Prevention is better than cure

In managing the bad loan problem, IBC should be the last resort for banks

The Insolvency and Bankruptcy Code, enacted in 2016, remains pretty much a work-in-progress. There has been a lot of criticism lately of the poor recoveries— or large “haircuts” —on some high-profile loans. The Standing Committee of Parliament attached to the Ministry of Finance has taken stock and made suggestions for improvement.

There are two models for resolution of firm insolvency. One is the credit-in-possession model, which is the model in the UK, where control over stressed assets passes to creditors. The other is the debtor-in-possession model, which is the model in the US, where the debtor remains in control.

In India, creditors