The Union Cabinet has cleared the proposal to suspend Insolvency and Bankruptcy Code (IBC) proceedings for bank defaulters for six months with a provision to extend the period for up to one year, CNBC-TV18 said in a news flash.
This will be applicable for NPAs (non-performing assets) after March 25. This was one of the proposals Finance Minister Nirmala Sitharaman had announced in her series of press conferences on the Rs 20 lakh crore economic package.
The move will offer relief to lot of companies battered by the COVID-19 crisis since these firms will not be dragged into the IBC proceedings for now. However, the decision may not be good for the banking sector since banks will have to sit on bad assets for a long period. They won't be allowed to take those accounts to IBC for quick resolution. This could lead to potential future stress and lower realisation through resolution process.
According to rating agency Icra, suspension of fresh insolvency proceedings for a period of one year would ensure relief for the companies that are severely impacted by the Covid-19 pandemic and are unable to meet payments to their creditors. However, realisations for financial creditors in FY 22 could be even lower due to the suspension of fresh insolvency proceedings for one-year period, Icra said.