‘It’s not a weakness in IBC, but how people are playing it’

You announced on Thursday that the government would provide ₹Guaranteed Rs 30,600 crore to buy National Asset Reconstruction Company Ltd. ₹2 trillion bad loans from banks. This will happen in a 15:85 split, with NARCL offering banks cash for 15% of the property value and issuing security receipts (partly guaranteed by the government) for the rest, which banks can sell in the market. Will there be an appetite for these securities?

Yes. That these assets are sitting without reconciliation need not give us the impression that they are of no value. Preference will be given to resolution formula, not liquidation. When you look at resolution, there is an implicit message being sent that these are practical assets and that with some doing, they will be valuable. There will definitely be interest in the market.

I place a lot of emphasis on professionals (management of assets), which is why, along with NARCL, we have established Bharat Debt Resolution Company Limited (IDRCL). It will have panels of experts; Panel because the property belongs to different categories. These panels will deal with properties in the areas in which they have expertise. With that kind of special mind on each property, we think they’ll be built in such a way, and valued in such a way, that the market will find it interesting. Bank executives don’t have that kind of expertise.

IDRCL is important for this, isn’t it?

IDRCL is owned by 49% of the banks. Indian Banks’ Association (IBA) will have to take this process forward as these assets belong to the banks; IBA will have more monitoring on this. It is in their best interest to run them efficiently. There is also a fee (against the guarantee) which NARCL will have to pay (to the Government); Fees get higher over time; So the sooner you sell a property, the better.

Are you sure it will work?

Yes, because the whole system was run by the banks; Many of these big-ticket exposures are through consortia; Unless all banks agree, no solution is possible. Now that it will be through IBA, it is for them to keep moving towards consensus, towards better solutions.

So the thing we’ve all been talking about for centuries – a bad bank – is finally here.

In a slightly different form, which would be much more transparent and owned by the banks themselves. In a country like America, 99% of banks are private. In India, you have a major part of the public sector.

Is this a transient system?

At this stage, we are not telling what happens after five years. ₹2 trillion will have to be cleared in five years. Further, I envisage that the banks themselves will be professional enough to figure out how they will handle their non-performing assets. If there was a need to continue it for larger properties at that time, they would continue it.

Misuse of a section of the Insolvency and Bankruptcy Code (IBC), where creditors agree to take huge deductions, sometimes more than 90%, on good underlying assets, has resulted in demands to strengthen the law. do you agree?

Yes and no Where haircuts are so important, I think some banks are even sitting there saying we can’t accept it. In a recent case, which resulted in 98% hair cuts, I am glad that the two banks disagreed, and they may have even gone to court and sought a stay. Such curriculum reforms highlight that the weakness is not the IBC itself, but the way the issues are being addressed. So instead of tinkering with the act, I will look for a solution. Where amendments are needed to strengthen the Act, I am in favor of them. But in practice, if there are ways in which people are either playing it up or simply giving a guess that is, in spirit, not in line with the law, then I think other avenues of legal redress are needed. It’s not a weakness in IBC but how people are playing it. So, we have to look at both- I’m happy to strengthen the IBC as it is one of the better ways of resolving; It focuses on resolution of an ongoing concern rather than liquidation.

India announced the launch of Account Aggregators (AA) allowing individuals and enterprises to share credit and financial information relating to their accounts or transactions with one financial or service entity with others with their express permission, so that their proven creditworthiness) which can lead to a wider credit base even though it makes it easier for financial institutions to lend. How do you see their acceptance?

This will benefit small and medium enterprises and the middle class. We are all concerned about data privacy, and the opportunity has been well received to provide comfort to borrowers when a data privacy law comes in. I think people have understood the description of AA, indicating that people are willing to see how it helps optimize systems.

Need a nudge? AA will only strengthen when more organizations working with people, such as telecom operators, become part of the network. your thoughts?

Many of the things the government is doing require a nudge—even small digital transformations that people must do. A lot of small movements have happened over the past year, and it is clear that the way UPI (United Payments Interface) is growing – we are now taking it to overseas Indians. The AA framework also needs a nudge. This is a big leap. But as you said, privacy laws and data protection frameworks are needed. Necessary consultation will have to be done. They cannot be bypassed. If stakeholders are brought on board, [if] Their input is used to strengthen the law, then when it is passed has greater acceptability. I don’t think it will be delayed; The more counseling, the better. That process will be done.

India has been ahead of the curve on many things – for example, UPI, and AA, but seems to be lagging behind in cryptocurrency adoption…

This may not be the best example, but take El Salvador. The way they proceeded to accept it (Bitcoin) as currency. You would think that common people don’t care about digital currency, but public took to the streets against this move. It is not a question of literacy or understanding; There is also a question to what extent it is a transparent currency; Will it be a currency available to all? El Salvador may be an exception, and they tried to do some experiments. There are other countries that are talking about having a legitimate cryptocurrency with a central bank. This could be a possibility.

There was a lot of consultation. The views of the Reserve Bank of India were also taken; Now, we have to prepare it as a cabinet note on which we can strike. This is not an era where you can say I don’t care about what’s happening, or that we don’t want to do anything. Also, are we still ready to go the El Salvador way? We have to make sure that the futuristic thing cannot be turned off.