India's Rajan wants companies to go bankrupt... and that's good

[anant_s]

Isn't this why lenders/ banks ask for security when someone applies for loan???

yes but in case of large value loans, legal proceedings take very long time to realize and allow liquidation.
if u recall Kingfisher airlines, it has still not clear how banks wil gey back their money as courts would still have to decide if Mallya is indeed a willfull defaulters.
liquidation of collateral will take even more time.
now if u see this time ( usually running in years) add to operating cost of banks something this bill is looking to change.

 

[dray]

I'm sure this will help many like me understand the gravity of the situation.

Bank's money is public money after all....here I would also point out something off-topic, RBI should have greater checks on private banks regarding the kind of money they pay to their top management including the CEOs, some of them get ridiculously unfair amounts in terms of salaries, bonuses and esops by making rules that suits them.

yes but in case of large value loans, legal proceedings take very long time to realize and allow liquidation.
if u recall Kingfisher airlines, it has still not clear how banks wil gey back their money as courts would still have to decide if Mallya is indeed a willfull defaulters.
liquidation of collateral will take even more time.
now if u see this time ( usually running in years) add to operating cost of banks something this bill is looking to change.

That's why willful or not shouldn't be a matter of consideration, it is a business's responsibility to use the debts judiciously, and they should be held responsible for their failure to do so. "Willful defaulter" is a vague term and very hard to define.

 

[acetophenol]

The Securitisation and Reconstruction of Financial Assets and Reinforcement of Securities Interest Acts (sarfaesi) (2002) allows the banks to quickly recover unpaid loans by the selling of commercial and residential assets. But this new upcoming law deals with condtion when the company declares bankrupcy i guess...........@Rain Man

Sarfaesi act made some news when J&K HC ruled that it doesn't apply to the state,and SBI Bank had to approach SC asking if people of J&K take loans and not repay them

 

[Spectre]

the larger fish will get to draw cash from global sources. Smaller ones would suffer.

Unfortunately it's the larger corporations who will wield power in the negotiations

Nein! Nada!Non! No!

once declared NPA, the credit rating is junk- the only source they can tap is the political black money. Doesn't matter if the concerned entity is neighborhood mom&pop store or an conglomerate

 

[livingdead]

It will be good news for everybody, both bankers and entrepreneurs who will benefit from confident bankers giving loan in the hope that if things go bad, they can recover some of the money easily.

 

[Providence]

Nein! Nada!Non! No!

once declared NPA, the credit rating is junk- the only source they can tap is the political black money. Doesn't matter if the concerned entity is neighborhood mom&pop store or an conglomerate

I was talking of the bankruptcy laws and it's deliberations. Negotiations will be spearheaded by the private corporations who currently have a lot of elbow room before they agree precisely since they have access to cheap credit from international market. The smaller ones neither have a say nor can draw cash that efficiently from international markets.

Not a fair world is all I was pointing out.

 

[livingdead]

I was talking of the bankruptcy laws and it's deliberations. Negotiations will be spearheaded by the private corporations who currently have a lot of elbow room before they agree precisely since they have access to cheap credit from international market. The smaller ones neither have a say nor can draw cash that efficiently from international markets.

Not a fair world is all I was pointing out.

currently Indian companies can borrow only upton $20 million in ECB(from abroad) and that too has many rules are regulations.(which sector you operate, what percentage you can borrow etc).

 

[Providence]

currently Indian companies can borrow only upton $20 million in ECB(from abroad) and that too has many rules are regulations.(which sector you operate, what percentage you can borrow etc).

what about the foreign listed ones ?

 

[livingdead]

what about the foreign listed ones ?

you mean foreign companies operating in India?

 

[Providence]

you mean foreign companies operating in India?

No the opposite ! I am sure many indian companies will be listing them on other bourses as well ?

 

[livingdead]

No the opposite ! I am sure many indian companies will be listing them on other bourses as well ?

Investors are the last ones to get any money in case of bankruptcy. Creditors are the first one. By the time creditors finish there is little left for investors. This is according to US bankruptcy law, and similar in India too.

Basically if you bought a company share in your stock market(say NASDAQ), you get almost nothing if company goes bankrupt, whether Indian company or US company.

 

[skyisthelimit]

Its a good move. Corporates need to be held responsible for their own mess.

There are lot of examples where CONgrass leaders owned businesses are bailed out by BANKS based on chits sent by CONgrassi ministers.

For example - sugar mills in Maharashtra owned and operated by NCP and CONgrass leaders in complete mess with loans. Mr. Malaya is another good example.