Resolving Indias NPA issue with the right mindset

<p>Indias attempts at resolution and recovery of non-performing assets (NPA) must be viewed as an extension of the federal governments Clean India Programme, albeit with the difference that it involved the cleansing of the financial system, opined a panel of experts at a discussion on Managing NPAs: Resolution and Recovery at the Fourth Global Exhibition on Services (GES) on Thursday.</p> <p>The panel was also of the view that since not all promoters were willful defaulters, appropriate mechanism also needed to be evolved to take a more considerate view, whenever required.</p> <p>There are two ways of managing NPAs proactive and curative. India needs specialist resolution professionals (RP) to guide and help the Committee of Creditors (CoC), Dr Mukulita Vijaywargiya, Whole Time Member (Administrative Law Wing) Insolvency and Bankruptcy Board of India, said in her opening address. Default claims needed to be appropriately verified after identifying the root cause of the problem, she added.</p> <p>Drawing an analogy from the Bhagvad Gita, Dr Vijaywargiya said that a default could also be an opportunity to arrive at appropriate remedies.</p> <p>Taking a historical perspective of the Indian banking sector in the post-Independent India, Dr Anup Wadhawan, Special Secretary Trade Policy Division, Department of Industrial Policy and Promotion (DIPP) under the Ministry of Commerce and Industry pointed out in his special address that the 2008 economic downturn had served to highlight structural deficiencies in lending to sectors such as power and roads and highways. This has led to the realisation that the situation requires more structural adjustments in a competitive manner. The Insolvency and Bankruptcy Code (IBC) is an open and transparent system for undertaking such adjustments, he emphasised.</p> <p>Asserting that important procedural systems in lending shouldnt be bypassed, he invited stakeholder feedback on the theme.</p> <p>MR Umarji, Former Executive Director, Reserve Bank of India, opined that a consequence of the IBC was that entire units were put on the block without the promoters being allowed to formulate a resolution plan for approval by lenders. With market condition often being a major contributor behind defaults, in some cases they might not constitute a criminal act. He further added that bankers were also being taken to task at not having complied with certain procedural requirements though they might not have done so with an ulterior motive. Hence, some amount of comfort was required to be provided to bankers or else it might have a negative impact on the lending sector.</p> <p>With the IBC being a new law, the present debate around it centered more on some of its procedures than actual issue of default, felt Piyush Mishra, Partner, AZB &amp; Partners. Maximisation of the value of distressed assets was an equally important part of the process. Its a debate that has been around in the UK and US. However, it is still new to India,ö he surmised.</p><p.deep n="" mukherjee,="" executive="" vice="" president,="" transunion="" cibil,="" felt="" that="" access="" to="" a="" robust="" database="" was="" an="" important="" prerequisite="" for="" strong="" bankruptcy="" resolution="" regime.="" bankers="" in="" india="" are="" facing="" issues="" because="" some="" of="" them="" had="" taken="" decisions="" subjectively="" than="" objectively,ö="" he="" said.="" however,="" the="" talk="" around="" npa="" presently="" largely="" restricted="" legal="" ramifications,="" added.<="" p=""> <p>Rajshekhar Kalluri, Senior Director, Business Relationship &amp; Management India Ratings &amp; Research, felt the NPA crisis stemmed from the fact that lenders wanted loans to be repaid within a period of seven to eight years while the economic cycle of developers was far longer. Compared to India, countries like Australia allowed developers more time to service loans.</p> <p>According to Venkataraman Renganathan, Senior Director, Alvarez &amp; Marshal India, the objective of the IBC was to organise recovery for the lenders. Lenders were therefore required to avoid the mindset that approaching the quasi-judicial National Company</p> <p>Law Tribunal (NCLT) was merely about liquidation of assets. Finding the right resolution professional (RP) was an important part of the process. The RP needs to have the right support system in place to take over the management of the distressed firm since the key people might have already left it and dues such as salaries would not have been paid for the past few months to employees. Thereafter, high-quality information was required for due diligence to enable better price discovery.</p> MANISH PANT</p.deep>