In what reveals the Modi government’s unprecedented success in successfully tackling the issue of Non-performing Assets (NPAs) in banks and Financial Institutions, Union Minister of State for Finance, Anurag Thakur has revealed that a total of Rs. 4 lakh crore has been recovered through insolvency and bankruptcy proceedings since the year 2014.
Thakur was speaking at the 70th annual function of the Institute of Chartered Accountants of India (ICAI), where he revealed some mind-boggling figures which reveal how Modi government has tackled the serious issue of NPAs plaguing the Indian economy.
He said that when the Modi government stormed to power in the year 2014, Non-performing Assets (NPAs) stood at Rs. 52 lakh crore. But owing to stern action by Financial Institutions by taking recourse to legal remedies and following the due process on the orders of the Modi government, such NPAs were brought down to Rs. 18 lakh crore. He said further legal proceedings also helped in recovering Rs. 4 lakh crore.
Addressing the Chartered Accountants, Thakur also exhorted them to help the government by persuading their clients to end litigations as much as possible in order to ensure that the Financial Institutions are able to recover their dues. He said, “It is our collective responsibility to help in further boosting the country’s economy.”
What Anurag Thakur has stated essentially brings into limelight the Insolvency & Bankruptcy Code (IBC), one of the biggest economic reforms introduced by the Modi government. The Code has created a healthy corporate culture in India that seeks to ensure payment of dues and loans.
India did not have a healthy corporate culture for decades. Several Indian companies were defaulting on their loans intensely because initially there was no law to dissolve their companies. The promoters were sure that the management of the company will not go out of their hands. They took loans from the government banks by bribing the employees with the intention of never returning the loan back.
However, ever since the enactment of the Insolvency and Bankruptcy Code, companies have now fallen in line and have started paying their dues, because the IBC rules bar promoters of companies that are classified as non-performing assets (NPAs) from bidding for these companies.
If the defaulter goes through the IBC process, the promoters lose control and can not even bid for their own company. The fear of losing control over management is what makes the promoters repay their loans. A senior government official said, “It would be wrong to say that all the cases are withdrawn because the debtor pays up, but we are seeing that dues are cleared in a large number of cases once a case is filed.”
The IBC is one of the biggest reforms introduced till date. It has inculcated a corporate culture of paying back loans to banks and Financial Institutions. Borrowers know that the costs of defaulting and undergoing the IBC process are rather exorbitant. This is what explains the Modi government’s exploits when it comes to reducing the NPAs and mammoth recovery of dues by Banks and Financial Institutions.
