India Bankruptcy Law Merits Further Legislative Consideration - RBI Deputy Governor

Reserve Bank of India (RBI) Deputy Governor Swaminathan Janakiraman recently said India’s Insolvency and Bankruptcy Code (IBC) has brought in substantial efficiency in the resolution process and improvement in recovery rates for financial creditors, but some aspects of the law merit further legislative consideration.

“For instance, there is a need to look at resolution of conglomerates and addressing resolution of corporate groups,” Janakiraman said at the Conference on Resolution of Stressed Assets and IBC – the Future Road Map, organized by CAFRAL in Mumbai on 10 January. The RBI uploaded his speech copy on its website yesterday.

He added that very often such groups have intricate corporate structure with inter-connected related party relationship that add to the complexity and become a hurdle in individual entity resolution.

Janakiraman said there’s also the unfinished agenda of a comprehensive resolution framework for financial service providers such as banks, non-banking financial companies (NBFCs) and insurance companies.

In the absence of an IBC like legislative framework for resolution of financial institutions, the IBC has been used for resolution of NBFCs, he added.

KNOWLEDGE & CAPACITY BUILDING

Janakiraman said the success of IBC also hinges on the expertise and proficiency of skilled resolution professionals. They need to be equipped with a thorough knowledge of the law as well as have a sound understanding of the nuances of finance apart from strong negotiation and management skills, he noted.

“From the government and judiciary’s side, there is a pressing need to invest in building the capacity of adjudicating authorities, such as the NCLT and the NCLAT, to handle an increasing caseload efficiently,” Janakiraman said.

Adequate staffing, training, and infrastructure of these institutions will go a long way in expediting resolution, he added, noting that efforts could also be made to reduce delays at the admission stage itself as well as rationalizing the processes.

Janakiraman said that significant foundational work has been done by the government and it is expected that the next set of reforms once legislated by the Parliament would further strengthen the IBC. It is conceivable that certain judicial interpretations may prompt the need for further reforms, aiming to enhance the efficiency and improve the outcomes of the resolution regime, he noted.

The Centre for Advanced Financial Research and Learning (CAFRAL) is an independent body set up by the RBI, according to its website. CAFRAL seeks to develop into a world class global institution for research and learning in banking and finance, it said.

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