Emphasising the importance of establishing a market for price discovery of stressed assets, the CEA said that without this, the process of taking the haircut itself becomes difficult
Sudhaker Shukla, Whole Time Member, IBBI, said that the economic analysis from emerging data shows that India can have V-shaped recovery
New Delhi: While noting that IBC is an evolving process and there is scope for making it far more efficient, Chief Economic Adviser Dr Krishnamurthy Subramanian said that it is definitely an important step in the right direction. Addressing a virtual session ‘Investment Opportunities in Stressed Assets in India,’ organised by FICCI, Dr Subramanian said, “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.
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.
Emphasising 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.
‘India can have a V-shaped recovery’
Sudhaker Shukla, Whole Time Member, Insolvency and Bankruptcy Board of India (IBBI), said that the economic analysis from emerging data shows that India can have V-shaped recovery. “One should be assured that we are at the right path of the recovery. There would be certain sectors which would be still under stress, hence there is a need for sectoral analysis to be done of those sectors,” he added.
Shukla also informed that the IBBI is developing a platform for stressed assets and eventually will have auction platform as well through which investors can easily find all information about the investment potential. “The virtual data room has been launched on 1st October and the auction facility will be available in another 6 months. I invite you (investors) to participate in the encouraging development story of India,” he added.
While highlighting the World Bank’s reports on Ease of Doing Business which mentions that the average time taken to resolve insolvency case in India has come down from 4.5-3 years to 1.6 years now. “All indicators suggest that India is the best performer in South Asia, and comparable in results emanating from the OECD countries,” Shukla emphasised.
Highlighting on the IBC process, he said that pre-IBC, the regime was scattered but now IBC has brought regulatory certainty along with time-bound processes. “All loopholes have been plugged in so this is a responsive regime. This is the reform by stakeholders, of the stakeholders and for the stakeholders,” he added.
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