A poster of All India Bank Employees Association (AIBEA) recently surfaced on social media. It provides a snapshot of the haircuts banks have taken when resolving loan defaults by large corporate groups—three accounts include waivers of over 90%. The data not only provides an insight into how India’s insolvency and bankruptcy resolution framework may have inadvertently created perverse incentives for defaulters, but also the ongoing “freebies” mandated by the Election Commission (EC). There is also a compelling counter-point to the debate. ) recent incursions. The two divergent trends seem to be tied to a common link: a sudden change of heart.
Liberal debt hair-cuts – some of which can be rationally justified – feed an ongoing debate about “freedom.” The debate was launched after Prime Minister Narendra Modi launched an attack against the culture of gift-giving in contemporary politics in his July speech. A debate has raged since then. The AIBEA poster is among the counterarguments against the dominant narrative, which states that protests against welfare benefits for the poor ignore an economic system built to formally end loan defaults by the rich and powerful. ,
The latest to join the debate is the Election Commission, which is proposing that all political parties provide an account for the promises made in their election manifestos, indicating the cost of each promise and how they intend to fulfill it. make plans. Apart from the strangeness of the proposal, the timing—just before the Gujarat assembly elections—is astonishing. It also coincides with a growing climax of condemnation by the ruling party against a prominent opposition leader for promoting freebies. The EC’s move may be a coincidence, but timing raises questions.
In addition to introducing techno-financial rigidity to welfare considerations, an asymmetry in an economy experiencing a recurrence of rising poverty numbers, the EC also seems oblivious to the fact that, one, few welfare measures are amenable to statistical measurement. And, two, that it can only trespass in an area reserved by democracy for negotiations between political parties and voters.
What makes this proposal even more ridiculous is the Election Commission’s full turn since April, when it submitted an affidavit to the Supreme Court, saying it was not qualified to control the state’s policies and decisions. Which one party wins and forms the government. Then, in August, when the Supreme Court proposed setting up an expert panel to probe the issue of freebies given by political parties before elections, the Election Commission refused to be part of the same panel, arguing that Giving that doing so was against his constitutionality. status. Then, in early October, came the inexplicable and sudden U-turn of the Election Commission.
Another example of a curious flip-flop is embodied in AIBEA’s snapshot, which shows that among the 13 loan accounts, the total loan amount comprises 446,800 crore, only Indian banks recovered 161,820 crores, which is an average of 64% haircuts. There are three accounts in which the total loan outstanding is approx. 73,000 crore, of which banks have taken over 90% of the haircuts – namely, Videocon, ABG Shipyard and Shiva Industries.
The last-mentioned name is likely to set an interesting legal precedent as both the National Company Law Tribunal (NCLT) and its Appellate Tribunal (NCLAT) ordered the company to be wound up, despite the resolution professional’s report to both tribunals. % of the creditors had agreed to the promoter’s one-time settlement plan which included over 90% haircut. Subsequently, in June 2022, a Supreme Court bench of Justices BR Gavai and Hima Kohli set aside the orders of the NCLT and the NCLAT, ruling that both tribunals were in defiance of a commercial decision made by a majority of the firm’s creditors. were not appropriate.
While the Supreme Court may be philosophically and legally justified, two issues deserve attention. One, the creditors—in which state-owned IDBI Bank is prominent—have settled 4,863 crore loan for JUST 323 crore, thus writing off 4,500 crores of the public. Interestingly, many creditors initially disagreed against the terms of the settlement, causing the mandatory 90% to fail to reach agreement; However, the International Asset Reconstruction Company (with 23.6% of the vote) had a mysterious change of heart a month later and changed its vote from “against” to “approved”, giving creditors the required majority.
It is quite likely that this one-time settlement on generous terms could encourage future borrowers to default and then get away with paying much less than what was originally owed, provided they are able to convince most creditors – here Even on a delayed basis – for the terms of such resolution to be agreed. To be sure, there are tangible benefits at the end of the tunnel: With their default record whitewashing, these borrowers are free to tap the credit market once again.
It appears that neither the Election Commission nor the Asset Reconstruction Company felt the need to provide a justification for their delayed ups and downs. While the Election Commission implements the Supreme Court’s 2013 order to justify its latest proposal, the end result is not only far more ambitious, but interesting, nine years after that order, but ahead of a crucial state election in the country. few months ago. Life seems to be imitating art, especially in Bollywood movies.
Rajrishi Singhal is a policy advisor and journalist. His Twitter handle is @rajrishisinghal.
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