The Indian government’s decision to exempt all debts related to Covid-19 from the definition of default under the Insolvency and Bankruptcy Code (IBC) and to suspend new cases for a year seems to be a risky proposition as this will put undue pressure on banks and financial institutions (FIs) pursuing the restructuring of their debtors.
The suspension of new IBC cases for a year will increase the overall number of NPAs, and even robust banks and FIs run the risk of balance sheet deterioration and being taken for granted by their customers.
In fact, this is the time when debt restructuring through the IBC to keep good businesses alive should be given the highest priority.
We hope the government reconsiders this move.