Brazen gaming of bankruptcy process on

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Brazen gaming of bankruptcy process on

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• Harsh Goenka is angry: Normally, rich Indian businessmen keep their mouths tightly shut on sensitive matters, but when Harsh Goenka tweeted appealing the PM on the shocking loan write-offs by Indian public sector banks, it was news. "Promoters getting 80 to 90 per cent haircut from bankers and NCLT" - is indeed shocking.
• Bankruptcy process gone bankrupt: With tonnes of hope, the new bankruptcy process was started in India in 2016, and has been gamed by the powerfully connected industrialists. A whole new set of touts and fixers has arisen (as the old ones have vanished), and it seems even PSBs need fixing. [PSBs - Public Sector Banks]
• OTS proposals: The PSBs are putting up one-time settlement proposals (OTS) to the NCLT (National Company Law Tribunal) under the IBC (Insolvency and Bankruptcy Code). 

1. For Siva Industries, banks too a 93% haircut, and for the Videocon group, it was 95%
2. Biggest lender to Siva was IDBI Bank (bailed out earlier by public money!) and to Videocon was the SBI (both are PSBs)

• Horrible losses: Since 2017, in 363 major settlements, banks hae taken an average haircut of 80 %.

1. Of the 4300 cases admitted in IBC 8% have been resolved, 40% are pending and 30% are in liquidation
2. Recovery figures are totally skewed, due to the early top 9 accounts in steel sector (when there was a stron upcycle)
3. Experts had warned beforehand that to expect the IBC to be a magic tool was foolish, as ground realities remained the same
4. Reasons were - poor PSB accountability, nature of Indian businessmen, IBC's structure and quality of legal processes in India.

• First case, first fraud: Gaming began on day 1, when the "first successful resolution" was a fraud. Indian promoters just don't want to give up their assets, and so acquire control over the same assets, again, via the IBC processes! That is done via "rehabilitation plans" submitted by promoters themselves. Bidding criteria are not clarified prior to inviting the bids, leading to litigation later.
• Course correction: The govt. realised this, and brought ordinances quickly to rectify things. Wilful defaulters were barred from bidding, and surprisingly, a criminal enterprise like DHFL was allowed to do so! 

1. Many fixes needed fixing, e.g. Setion 12A was added by a 2018 amendment where a party can close an insolvency case with approval of 90% of COC (committee of creditors). 
2. And in 2021 June, the NCLT questioned how a 95% haircut was okay in the Videocon resolution. Govt. is planning to plug this loophole too now (of exit route allowed in negligible OTS).
3. Clearly, in India, the law is different for different people.

• Bad loans, the best indicator: India's bad loan problem was worth Rs.10 lakh crore in 2017, and more like Rs.20 lakh crore (insider estimates). Most was with the PSBs. So if the IBC was actually resolving cases well, all PSB stocks would rise in the markets. But that is not happening at all, proving the ineffectiveness of the IBC mechanism. 
• Summary: Truth is that the bad loans are due to deep corruption and the banker-businessmen-politician nexus. That same nexus is now gaming the IBC too. Absconding defaulters are dictating terms to PSBs, with the only condition being they must be close to the ruling party.

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