Rating agencies need to be more transparent in disclosures on stressed companies and assets so that both the lenders as well as asset reconstruction companies can arrive at the right valuation, a senior Reserve Bank official said on July 1.
"We need better disclosures by credit rating agencies when it comes to stressed companies. Rating agencies must be more transparent in their disclosure about stressed assets and their owners," RBI Chief General Manager Ajay K Choudhary said at a seminar on ARCs (asset reconstruction companies) organised by an industry body and Association of ARCs.
The RBI official said such disclosures can go a long way in resolving the dud loan problem in banking sector, which has touched a whopping Rs 8 lakh crore as of March.
Admitting that there are inherent issues like valuation and working capital loans to a company under SDR (strategic debt restructuring), which are preventing smoother development of the domestic ARC industry, he said while banks are not ready to take deeper haircuts, the ARCs are not ready to pay higher value to a stressed asset.
"Valuation is the biggest hurdle in debt resolution now," Choudhary said, adding rating agencies can help in arriving a the right valuation by better disclosures.
The official also said the just enacted Bankruptcy Code can help ARCs and banks a lot.
Addressing the event on behalf of Economic Affairs Secretary Shaktikanta Das who could not make it, his deputy Saurabh Garg said a draft law on debt resolution mechanism for distressed companies will put out for discussion shortly.
"The government will soon put out a draft on resolution of distressed financial firms for discussion. An expert committee is working on a resolution mechanism to deal with bankruptcy in banks, insurance companies, and other financial sector entities. This is a work in progress and suggestions from the industry are very welcome," Garg said.
"We are working on this code in the department and may be soon we will be able to get the draft law which will be put out for discussions," he added.
Terming the new Insolvency and Bankruptcy law, which was approved by Parliament in May, as a milestone, he said the new law allows consolidation of all laws related to insolvency for companies, limited liability entities, unlimited liability partnerships and individuals apart from time-bound mechanism for maximisation of value of the assets.
The new law also separates commercial aspects from judicial aspects of insolvency proceedings, he added.
"The operationalisation of the new law has already started and the focus is to do it as fast as possible with insolvency professionals' support subject to their availability," Garg said.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
