The government is looking at a pre-packed mechanism for small and medium enterprises. The idea is to provide protection to the small enterprises but also to not have the courts jam packed and provide an out-of-court solution to the banks and the creditors. as well. Do you see this being a success in India?
There are several facets to this. If this were to be implemented, it would be a big step on the part of the government. One thing is pretty clear. Right from the emergency credit line – -the first stimulus programme which was followed by second and then RBI which stepped in on Covid-19 stress alleviation, the government has been taking a lot of steps. When initially it was determined that if the financial lenders have to follow the normal course of IBC, then it will be flooded with many cases as a lot of MSEs were facing a lot of stress on account of economic cycles or Covid.
So this would be a very big measure if it comes through and settling out of court can have some macro implications. National assets will be put to use. Otherwise, the IBC process takes a lot of time as we have seen in the case of Bhushan Power and several other cases. In such a situation, assets are not really being used and economic values not generated.
We will have to watch what really comes out on March 12 but this is a very commendable step.
How do you ensure that the bankers are on board with regard to something like this? Bankers tread very cautiously with respect to the resolution plan. What do you think the government will have to put in place to ensure that bankers are okay with this mechanism?
Even under the IBC Law, a lot of cases with mid sized exposure to the financial lenders have gone through quite fast. The reason is very simple. As the size of the enterprise comes down, it reduces the number of bankers involved. So, it is less difficult for the lenders to arrive at some kind of a resolution faster and there is no need to take it to IBC if the borrower and the creditors agree. There will be glitches and some cases where either the promoters may not readily agree to settle outside of the court or may want to track the case or in some cases, number of financial lenders may be more. But by and large, for small businesses — the MSE and MSMEs — I suppose the banking relationships are fewer and therefore the resolution mechanism can work really fast.
