Budget 2015: Uniform bankruptcy code for an easy exit a welcome step, says Arundhati Bhattacharya

By Arundhati Bhattacharya

The Union Budget for FY16 has unveiled a vision for the future. The government has rightfully decided to spruce up public investment to channelise private investment.

The 3.9% fiscal deficit target for the next fiscal looks well thought-out with the revenue assumptions having the potential to overshoot. The decision of a bankruptcy law has been a longstanding demand from the bankers. Uniform bankruptcy code for an easy exit also spells the course to be adopted by lenders henceforth.

The loopholes existing on account of multiple laws like SICA (Sick Industrial Companies Act) and Board for Industrial and Financial Reconstruction (BIFR) that allowed defaulters to exploit and delay recovery will stand altered. This code would replace the SICA as well as the BIFR.

Also, the decision to have commercial courts acting under judicial courts may fast-track debt recovery. For the lender, this appears to be a big positive as tightening of defaults will lead to ease of doing business. The proposal for a public contract law would cut down the time taken in resolving disputes arising out of public contracts in the infrastructure sector.

The industries aligned to infrastructure are construction, real estate and project management companies that will clearly benefit. The encouragement to use cards instead of cash not only allows banks to focus on services but do away with large manpower dedicated to handling cash.

Along the entire supply chain for supply of cash, the banking system bears the highest cost because of high fixed costs of ATM machines, higher opportunity cost of holding cash and negative externalities like higher soiling of notes. In short, this particular move will bring down the social cost of unaccounted money, apart from adding to the bank’s bottom line. This proposal, coupled with a legislative framework to counter black money, will act as a deterrent for a parallel economy and result in better price discoveries in the construction sector.

The move to bring NBFCs on a par with financial institutions will help banks to clean up their balance sheets by selling stressed assets at an early stage to ARCs. This is because NBFCs, on account of their inability to access SARFAESI would only take on NPA accounts where SARFAESI is already invoked. Now, SME accounts would also be applicable. Overall, the Budget is a pragmatic vision and a road map for the future.



Arundhati Bhattacharya is Chairman, State Bank Of India