The new IBC has provided a resolution framework for banks to clean up their balance-sheet and also bring management changes in companies where defaults were prolonged
The Insolvency and Bankruptcy Code (IBC) is helping improve the health of the banking sector, which saw the gross non-performing advances (GNPA) ratio of Scheduled Commercial Banks (SCBs) rise from 9.6% to 10.2% between March 2017 and September 2017, according to the Economic Survey.
The new IBC has provided a resolution framework for banks to clean up their balance-sheet and also bring management changes in companies where defaults were prolonged.
"An ecosystem for the new insolvency and bankruptcy process took shape in 2017-18. The IBC mechanism is being used actively to resolve the NPA problem of the banking sector," the survey said. The Code prescribes strict time limits for various procedures under it.
Calling for greater privatisation in the banking sector, the survey said that the IBC was noteworthy for cracking the long-standing 'exit' problem, and there was a need complementary reforms to shrink unviable banks allow private banks to come in the sector.
"The Twin Balance Sheet (TBS) actions, noteworthy for cracking the long-standing 'exit' problem, need complementary reforms to shrink unviable banks and allow greater private sector participation," the pre-Budget survey said.
The long-festering TBS problem was decisively addressed by sending the major stressed companies for resolution under the new IBC and implementing a major recapitalisation package to strengthen the public sector banks (PSBs), it said. As a result of these measures, the dissipating effects of earlier policy actions, and the export uplift from the global recovery, the economy began to accelerate in the second half of the year.
Of the 4 Rs of TBS - recognition, resolution, recapitalisation, and reforms - recognition was advanced further, while major measures were taken to address the others, it said.
"A major factor behind the effectiveness of the new Code has been the adjudication by the Judiciary. The Code prescribes strict time limits for various procedures under it," the survey said.
The performance of the banking sector, PSBs in particular, continued to be subdued in the current financial year, it said.
The bank credit grew 8.85% over the previous year in November 2017 as against 4.75% in November 2016, it said, adding that the bank credit lending to services and personal loans but industrial loans also grew during this period.
According to the Economic Survey, data on credit disbursed by banks shows that out of a total outstanding credit of Rs 26,04,100 crore as of the 2017, about 82.6% of the amount was lent to large enterprises, and MSMEs got only 17.4 % of total credit.
Large industries got Rs 21,502 crore, micro and small industry got Rs 3,592 crore and the medium industries got Rs 947 crore.
However, the survey also pointed out that the industrial bank credit growth decelerated compared to previous year.
"One reason why the industry growth might have decelerated could be the slowdown in credit growth. Growth of credit deployed (outstanding) to industry slowed significantly in 2015-16, turned negative in 2016-17, and has continued to remain so in H1 of 2017-18. This decline may be due to lower demand for credit or greater recognition of the problem of non-performing assets that might have led the banks to become more cautious on lending. However, as on November 24, 2017, credit outstanding to industry sector was 1% higher than what was on November 25, 2016," the survey said.
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