InvestorQ : Why are some banks upset with the government over the 1 year freeze on insolvencies?
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Why are some banks upset with the government over the 1 year freeze on insolvencies?

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8 months ago
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In the fifth tranche of the stimulus package, Nirmala Sitharaman announced the suspension of fresh initiation of insolvency proceedings up to one year on account of the pandemic situation. Additionally, there is also an exclusion of COVID-19 related debt defaults. However, some analysts and bankers are unhappy that this could create a systemic risk as unscrupulous borrowers could defeat the very purpose of IBC. It is also argued that putting IBC on hold for one year would put more stress on banks which are already under NPA pressure. Most experts and bankers are of the view that this should have been left to the discretion of the banker and should have been on a case-by-case basis rather than taking a blanket view. The apprehension is that even in cases which were doubtful or bad before COVID the borrower may take umbrage under this stipulation. The fear is also that this could negatively impact the credit risk metrics of a bank and result in more downgrades.

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