There is scope for making IBC more efficient – Chief Economic Adviser, GoI
Published: Oct 15, 2020
By TIOLCORPLAWS News Service
NEW DELHI, OCT 15, 2020 : Yesterday while addressing a virtual session ‘Investment Opportunities In Stressed Assets In India', organized by FICCI, Dr Krishnamurthy Subramanian, Chief Economic Adviser, Govt of India said, "IBC is an evolving process and there is scope for making it far more efficient. It is definitely an important step in the right direction." He also added that "Given the stress that had built up in the financial sector before we entered the crisis, we will now have to take care of some stress that will inevitably happen because of COVID-19. The eco-system of creative destruction is a very important part of any economy." In order to make the distressed assets market to flourish in the Indian context, Dr Subramanian said that we need to focus on incentives for banks, especially public sector banks, along with establishing a market for price discovery of stressed assets. He further highlighted that when a company goes into distress, judgment is involved in order to avoid the under-investment problem. "With the involvement of judgement, there is always a possibility of hindsight bias which can create enormous risk aversion. Judgement and investigation that does not take into account some of these nuances can make it difficult for the bankers to do what is economically efficient," Dr Subramanian noted. Emphasizing the importance of establishing a market for price discovery of stressed assets, he said that without this, the process of taking the haircut itself becomes difficult. "This is where distressed funds play an important role. Also, the corporate bond market that enables the distressed companies, for the loans and bonds to be traded also becomes important." Highlighting the US case of having a market for price discovery, he said that there are some important market failures which we have in the creative destruction process which we need to focus, added Dr Subramanian.
