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Business Tit-Bits

The Story of Bank Haircuts


At a time when India’s giant NPA problem was rising, the IBC was ushered in for a much needed time bound solution to the crisis. Within 180 days, either the assets were sold, management changed, or a settlement was negotiated whereby the banks had to take haircuts. The upper limit for resolution via the IBC process was 270 days. However, companies such as Essar and others, through dubious means and expensive lawyers, found a way to delay the process and put obstacles in between the time bound resolution. Prior to the IBC process, NPA resolution was a farce only meant to manipulate books of accounts. A clear tried and tested process involving restructuring, OTS and sale to ARC’s were in place; and only if this failed was the matter taken to DRT, leading to endless litigation. Liquidation was an utter rarity. Interestingly, under IBC at the NCLT, the OTS mode of settlement is back, with banks having to take huge haircuts. While a NPA resolution is always good news, the point of concern is the OTS settlement in the matter of fraudulent and wilful defaulters. If this is the case, then why was the IBC brought in the first place. And down the line you can be sure the NCLT too will become like any other court in India, with never ending litigation.

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