Formula Two

THE GOVERNMENT’S latest formula to heal a system staggering under ` 14 lakh crore debt is essentially bank driven, and comes two years after the path-breaking bankruptcy code. And it has been just a few months since the Reserve Bank of India scrapped all restructuring schemes. It had sent a clear message to rogue promoters – ‘ Pay Up Or Face Liquidation’.

The RBI has been pushing banks to institute bankruptcy proceedings against corporates that default. Experts contend that the new structure of an AMC is more likely to dilute the most modern bankruptcy code.

The code actually has a defined plan for restructuring and resolution within 180 days. With a new AMC structure bankers will now find an easy way to push bad assets to AMC(s) and avoid provisioning. This in turn will actually erode asset value, if the matter is not resolved and later requires bankruptcy proceedings.