India’s move to allow smaller firms to use a more efficient bankruptcy filing system opens the door for the broader adoption of a process that may help the country to tackle one the world’s worst bad debt problems.
An executive order by the federal government on Sunday means that SMEs can now work out a resolution with creditors before they reach court. Market participants are pressuring authorities to allow larger companies to use this prepackaged system in order to speed up the process in India, where cases often languish for years.
The slow pace of helping troubled companies magnifies the challenges that Indian banks faces as they battle soured debt, especially amid a lingering credit crisis that claimed three lenders last year. The bad debt problem may grow as India grapples with the world’s highest daily Covid-19 caseload, forcing curbs in its richest state, including in its commercial capital Mumbai.
The step toward a quicker process comes as India has recently allowed new bankruptcy filings, re-opening a key path for lenders to tackle bad debt, but threatening to flood the already overloaded court system with a wave of new insolvencies.
