As part of the several steps undertaken by the government under the economic stimulus package, Finance Minister Nirmala Sitharaman announced that an ordinance will now be brought in to suspend the initiation of fresh insolvency cases for a year.
After the Centre's relaxation for companies under the Insolvency & Bankruptcy Code (IBC), the Reserve Bank of India (RBI) may now have to ease the restructuring and provisioning norms under the insolvency law, The Economic Times reported.
As part of the several steps undertaken by the government under the economic stimulus package, Finance Minister Nirmala Sitharaman announced that an ordinance will now be brought in to suspend the initiation of fresh insolvency cases for a year, in light of the disruption in economic activity due to the novel coronavirus, or COVID-19, pandemic. Further, the definition of ‘default’ under the IBC will be amended to exclude COVID-19 related debt.
Moneycontrol couldn’t independently verify the report.
While the step aims to provide relief to companies that are struggling to stay afloat amid the battered economic situation, the report quoted bankers as saying that with the blanket ban on insolvency proceedings, the only other way to deal with defaults now is the restructuring of loans. However, an easing of the stringent RBI reforms are a precondition for this.
The blanket ban on fresh IBC proceedings necessitates that the provisioning norms and 180-day period for restructuring of loans mandated by the RBI are suspended, bankers told the paper.
The report notes that there are concerns regarding a fall in asset values in the post-pandemic scnerario, which could deal a blow to the recovery rates.
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