The onus needs to be on banks to get far more intensive on AI, machine learning in addressing both adverse loan selection and moral hazard problems: ED- India, International Monetary Fund: Evergreening and zombie lending leads to distressed assets not being recognised
FinTech BizNews Service
Mumbai, February 24, 2024: “What happened before IBC was the phenomenon of super equity, where the promoter remained in control and played the game of heads I win, tail you lose. IBC has generally put to rest that part. The credible threat of losing the firm has made a big difference now. I hope that the industry will start thinking about the technology and language problems that we had, and focus on the loop holes for promoters to get away.” said Prof. Krishnamurthy V. Subramanian ED- India, International Monetary Fund (IMF) & Former Chief Economic Advisor, GoI at ASSOCHAM’s 7th National Summit on Stressed Assets.
“Evergreening and zombie lending leads to distressed assets not being recognised and capital allocation being very poor in the economy. We should be thinking about bringing disclosure standards on default actually, at least on actual default of payment if not to the level of the advanced economy where even technical default defaults are disclosed. The onus needs to be on banks to get far more intensive on AI, machine learning in addressing both adverse selection and moral hazard problems. There is enough research for banks to assess using data not just the ability to repay even the willingness to repay as well.”
“With necessary legal arrangement put in place, a public sector banking network could and should be created so that the scale for a very high level of data analysis with algorithms like artificial intelligence and machine learning are being used to assess objectively both the ability to repay and the willingness to repay.” He added.
Shri Sunil Mehta Chief Executive, India Banks Association, said “Stressed assets not only impact the balance sheets of the banking system, it also has an impact on the overall economy as it impacts the capability of the lenders to lend and the available resources are not recycled. The introduction of IBC in brought a lot of change in financial discipline. The corporates got to understand that if financial discipline is not maintained, because of the section 29A, they may not be able to retain their own enterprise and they may have to sell it. Corporate sector delinquencies have come down as a result.”
“An asset sold after 10 years of NPA doesn't bring value to any stakeholder, so if the lender starts taking proactive decisions of reaching to a resolution stage, that can really help. There is a need for change in the mindset of the banking sector, for early identification of stress and preparing for an early resolution. This will really help the entire ecosystem. The resolution framework, which consists of ARCs, can now act as a resolution applicant in an IBC process. Creating greater confidence in the ecosystem mutually exchanging their thoughts, in mutually understanding, in creating an ecosystem, creating value for each other, because in this, it's a win-win situation” he added.
Shri Sudhaker Shukla Whole Time Member, Insolvency and Bankruptcy Board said, “We have already concluded 228 resolution plans and will touch a humongous figure of 250 resolution during the financial year. Things are moving in the right direction and the settlement of cases is far exceeding the intake of the cases in the IBC processes. We are aligning with market forces to deliver best possible asset market. Six amendments already happened and 12 regulatory changes involving 86 interventions have been made. We have moved through sandbox approach towards sectoral alignment and that journey will continue. We are working to roll out this integrated IT platform by the end of this year to make online orders to be available on the same day real time basis. Design principles for the platform have been decided and we are in the process to get a final vendor who will implement this.”
RK Bansal, chairman, Association of ARCs in India and MD & CEO, Edelweiss Arc Pvt Ltd. said, “So finally banks have started lending to Corporates cautiously and the but kind of lending that happened in 2008 to 2012 is not going to come back because of two three reasons. “One, banks have become cautious, the policies have started to be stringent, mismanagement practices are better. Those type of infrastructure projects are not going to come in private sector. And secondly, IBC. So today no industries will like to grow that type of money if you know that something goes wrong and it becomes empty and it goes to IBC. Our asset restructuring Companies (ARCs) has been on the resolution. We should actually be supposed to be able to maintain loans, not only in corporate loans, but it should be useful to the society, useful to the sellers, useful to the system. I think then, nobody can stop the ARC industry.”
“There are various inputs from stakeholders, people come with their problems and we need to resolve them. It will encourage more and more applicants, they can have a broader market and also reduce the load on our tribunals and judicial system. Resolution takes time and there is normally 90 days upfront period which is challenging. There is a lot of pressure on the SRA and the team. Pre-admission claims by various stakeholders, statutory authorities take up much time of the SRA. Can there be a regulation for accountability of such actions by statutory authorities? Said, Pradeep Goel, Chairman, ASSOCHAM, National Council for Stressed Assets and MD Prudent ARC
