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1
Thread on how Insolvency and Bankruptcy Code (IBC), one of Modi govt's landmark fin reforms revived India's banking system by recovering a mountain of bad loans left by UPA govt
2015: RBI conducted AQR (Asset Quality Review) of large borrower accounts
thehindu.com/business/Indus…
Thread on how Insolvency and Bankruptcy Code (IBC), one of Modi govt's landmark fin reforms revived India's banking system by recovering a mountain of bad loans left by UPA govt
2015: RBI conducted AQR (Asset Quality Review) of large borrower accounts
thehindu.com/business/Indus…
2
2015: Outcome of AQR
Most banks were hiding bad assets under the practice of "forbearance" AQR overrode such accounting methods & helped determine the accurate level of bad loans
True NPA level shot up from INR 2.78 lakh crore to INR 9.5 lakh crore
financialexpress.com/economy/dramat…
2015: Outcome of AQR
Most banks were hiding bad assets under the practice of "forbearance" AQR overrode such accounting methods & helped determine the accurate level of bad loans
True NPA level shot up from INR 2.78 lakh crore to INR 9.5 lakh crore
financialexpress.com/economy/dramat…
3
Understand the enormity - INR 10 lakh crores (US $150 billion) is larger than the GDP of 130 countries
This amount was stuck with corporate borrowers, not returning to banks, thus making capital unavailable for other growing businesses and impeding India’s economic growth
Understand the enormity - INR 10 lakh crores (US $150 billion) is larger than the GDP of 130 countries
This amount was stuck with corporate borrowers, not returning to banks, thus making capital unavailable for other growing businesses and impeding India’s economic growth
4
From IMF’s 2016 data, India’s bad loans (8.6%), were much higher than any other prominent economy like China, Japan, USA, UK where this is below 2%
Previous govt had left India's banking system better than only Pakistan
From IMF’s 2016 data, India’s bad loans (8.6%), were much higher than any other prominent economy like China, Japan, USA, UK where this is below 2%
Previous govt had left India's banking system better than only Pakistan
5
2016: Insolvency and Bankruptcy Code (IBC) was passed as a one stop solution for resolving insolvencies
IBC set strict time limit for cases to be resolved within 270 days (9 months)
National Company Law Tribunal (NCLT) was constituted for overseeing the process under IBC
2016: Insolvency and Bankruptcy Code (IBC) was passed as a one stop solution for resolving insolvencies
IBC set strict time limit for cases to be resolved within 270 days (9 months)
National Company Law Tribunal (NCLT) was constituted for overseeing the process under IBC
6
2017: RBI identified 12 accounts (“The Dirty Dozen”), each having more than INR 5,000 crore (US $745 million) of outstanding defaults. These 12 accounts comprise 25% of total NPAs
2017: RBI identified 12 accounts (“The Dirty Dozen”), each having more than INR 5,000 crore (US $745 million) of outstanding defaults. These 12 accounts comprise 25% of total NPAs
7
2018: Multiple resolutions bring money back into the system
Bhushan Steel - 35000 crore
Electrosteel - 5000 cr
part of 8000 cr from Jyoti str
Ruchi Soya - 6000 cr
economictimes.indiatimes.com/industry/indl-…
2018: Multiple resolutions bring money back into the system
Bhushan Steel - 35000 crore
Electrosteel - 5000 cr
part of 8000 cr from Jyoti str
Ruchi Soya - 6000 cr
economictimes.indiatimes.com/industry/indl-…
8
2019: Essar Steel - another 42000 crore returned
82 accounts resolved by the IBC. Avg realization 48% & average resolution time 310 days vs WB est. of 27% & 1580 days
2100 smaller firms return 83000 crore Total recovery 3 lakh crore within 2 yrs
financialexpress.com/industry/defau…
2019: Essar Steel - another 42000 crore returned
82 accounts resolved by the IBC. Avg realization 48% & average resolution time 310 days vs WB est. of 27% & 1580 days
2100 smaller firms return 83000 crore Total recovery 3 lakh crore within 2 yrs
financialexpress.com/industry/defau…
9
RBI has also created a 2nd list of 28 accounts to refer to NCLT for resolution under IBC
These accounts together account for 40% of bad loans and are to be resolved next
25% bad loans from 1st list + 40% from 2nd = 65% bad loans addressed under IBC
economictimes.indiatimes.com/industry/banki…
RBI has also created a 2nd list of 28 accounts to refer to NCLT for resolution under IBC
These accounts together account for 40% of bad loans and are to be resolved next
25% bad loans from 1st list + 40% from 2nd = 65% bad loans addressed under IBC
economictimes.indiatimes.com/industry/banki…
10
With efficient NPA resolution and large amount of capital returning to system, Indian banks have found their feet again
CRISIL upgraded the outlook on 18 Public Sector Banks from Negative to Stable
S&P says Indian banks will see a spectacular turnaround from 2019-20
With efficient NPA resolution and large amount of capital returning to system, Indian banks have found their feet again
CRISIL upgraded the outlook on 18 Public Sector Banks from Negative to Stable
S&P says Indian banks will see a spectacular turnaround from 2019-20
11
IBC is a landmark reform
Even Stanley Pignal @spignal (Editor at “The Economist”), who's not easily impressed by India's economic policies, gives it a thumbs up and calls it a "tough code" "blow to cronyism" with potentially "far reaching impact"
IBC is a landmark reform
Even Stanley Pignal @spignal (Editor at “The Economist”), who's not easily impressed by India's economic policies, gives it a thumbs up and calls it a "tough code" "blow to cronyism" with potentially "far reaching impact"
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