Patience, competence must in resolution

Do not rush through insolvency resolution, if it has to take the form of sale as a going concern at a price that entails a massive haircut for the banks. Hand the asset over to the bad bank being set up for patient resolution — if necessary, individual element by individual element of the unbundled assets of the distressed firm. Bankers colluding with lenders to inflate project costs and, thus, the loans to finance them is part of the folklore. We do not want to fresh legends, baseless or well-grounded, of bankers colluding with buyers to sell distressed assets cheap behind the cover of the Insolvency and Bankruptcy Code — in either case, at the expense of the bank, its shareholders and the taxpayer, if the bank has to be recapitalised at public expense.

The National Company Law Tribunal (NCLT), which approved the sale of debt-ridden Videocon to Vendanta’s arm Twin Star Technologies, observed that the buyer paid almost next to nothing. The ₹2,962 crore bid entails the creditors taking a 96% haircut on the loans, and operational creditors getting barely 0.72% of the admitted claim amount. The Insolvency and Bankruptcy Board of India must take a call if such resolution advances the public good. Bankruptcy proceedings are now underway against defaulting real estate firm Jaypee Infratech that owes lenders about ₹10,000 crore. When creditors vote to choose between the bids of NBCC and Suraksha, the only thing they decide would be the accompanying tune: after all, the underlying assets, land parcels stretching from Greater Noida to Agra, are going for a song.

To achieve the public policy goal of maximising the value realised from resolution, patience and hard work are called for. The present system does not seem to deploy these.