Politics around Bankruptcy Ordinance & Law
By: Amit Bhushan Date: 24th Nov. 2017
We have most of the pink press crying hoarse around the bankruptcy ordinance as are their counterparts in the commercial news media. The theme is quite nuanced. How are the banks going to be impacted since the promoters would be left out to bid for the assets controlled by them? According to the ‘experts’ quoted by them, this would drive down the asset prices and the banks are going to struggle to keep their head out of water. The impact on the ‘investments’ would be catastrophic as the ‘risk takers’ would shy away from green field investments and would try out taking over some of these stressed assets. The commercial news media has mostly remained shy of questioning some of these promoters over their continued right on the assets that they have not paid for and has continued to support the ‘risk taking’ by them. This when several entrepreneurs would be ready to take similar kind of risks, if they get equal support from the banks.
Not one of the commercial news media channels is talking about the principles of ‘law’. It is not just to tide over a situation, but has to balance for a long term. Current processes supported or rather rewarded ‘adverse selection’ of credit especially if done in favour of the ‘well connected’. The banks could be easily persuaded to lend by such borrowers, and then to keep the loan account green, the bankers were forced to cough up more loans and this process could go on till there are newer people in helm to support the process. Then some of the loans might be allowed to go ‘bad’ and written off the books only to ensure that the old owners can get the underlying assets back at much lower settlement costs or if the larger assets are in play then senior bankers would be left devising schemes and plans to keep the assets-book in ‘green’. The commercial news media also celebrated the key promoters in play as big risk takers without whom the economy would not be witness to investments and large projects. The Netas and political parities with their litany of 'experts' who have time for every other issue to be showcased via a dutiful commercial news media are lothe to discuss the topic and make their views known. The issue may now be handled by 'experts' who may find some technicality to please the powers that be.
The ordinance and the bankruptcy code in principle attempts to close a loop-hole whereby the bankers at helm as well as their ‘clients’ now know that the principles are laid out clearly. The actual procedures and the implementation might be awaited. While there might be some impact, however this would ensure that the principle of buying into assets on loan and then wait for opportune time to ‘settle’ at borrowers’ term may now be difficult even though the commercial news media maintains a studied silence around defaulters as well as loan liquidation and write-off by banks. To revoke the rule might be politically difficult as the law does give some netas and party some bragging rights and political touchiness in a ‘farmer dominant’ politics with which all ruling classes want to be seen as being associated with.
The commercial news media journos take a sudden turn to shed their crocodile tears about the banks with their depositor’s at risk, instead of the how should law look into fundamental principles of equality and closing gaps for the well connected to get away. This shall force the people to borrow only the amounts they can service lest they lose rights over assets which they have not paid for (being bought on loan). It also would call for more careful spend by promoters and force banks to distribute risk more evenly by considering more of the small well run companies and entrepreneurs for credit instead of safely placing all their bets on some well-known and connected names. Let the ‘Game evolve…..