Can the latest legislative attempt to improve India’s abysmal debt recovery rates succeed where others have failed? Rebecca Abraham reports
Winding up an ailing company in India is not for the faint-hearted. It can take more than four years, and lenders currently expect to recover only around 20% of what they are owed once a default takes place.
Emblematic of the problem is the situation with the now defunct Kingfisher Airlines, which owes ₹70 billion (US$1 billion) to lenders. Creditors are set to auction the airline’s Mumbai office building in April, nearly three years after its planes were grounded and employees stopped receiving their salaries.
A thicket of laws
Blame for situations such as this is typically assigned to the complexity of the legal framework for insolvency and bankruptcy. Multiple laws provide for debt recovery – including the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) – and the forum for debt recovery is sometimes a debt recovery tribunal and at other times a court.