Assignment 2 Insolvency and Bankruptcy Code
Assignment 2 Insolvency and Bankruptcy Code
Assignment 2 Insolvency and Bankruptcy Code
Recovery of debts due to banks and Mentions Debt Recovery Tribunal and
financial institutions Act, 1993 Debt Recovery Appellate Tribunal
Objective was to ease recovery of bad
(RDDBI) debts by banks which, previously by
normal court procedure, was an arduous
task; hence, establishment of specialised
tribunals
Balance Sheet Approach
Securitization and Reconstruction of Secured creditors given primary
Financial Assets and enforcement of the importance
Security Interest Act, 2002 Creditors given power over property of
borrowers
(SARFAESI) Establishes asset reconstruction
companies
Companies (Second Amendment) Act, Replaces BIFR and AAIFR of SICA with
2002 NCLT and NCLAT respectively.
Deals with all disputes related to
company law and wind up petitions
IBC, 2016 Cash flow approach for quick debt
resolution
Prompt Corrective Action Framework
PCA is a framework by which the RBI helps banks to maintain safe financial metrics by
alerting them through progressive and continuous triggers. Banks become risky if they fall
below certain norms in the following 4 parameters and PCA may be triggered. Respectively,
3 risk threshold levels have been created to trigger the alerts, 1 being the lowest and 3 being
the highest.
Threshold 1 Threshold 2 Threshold 3
Capital to risk- 7.75%<=CRAR<10.25% 6.25%<=CRAR<7.75% <3.625%
weighted assets
ratio
Asset quality >=6.0% but <9.0% >=9.0% but < 12.0% >=12.0%
Profitability -ve ROA for 2 -ve ROA for 3 -ve ROA for 4
consecutive years consecutive years consecutive years
Leverage <=4.0% but > = 3.5% < 3.5%
PCA framework applies to all banks in India including small banks or foreign banks
operating through branches. On the breach of the risk thresholds, RBI invokes a corrective
action plan. Depending on the level of risk threshold, RBI can place restrictions on branch
expansion, management compensation, and dividend distribution.
References
https://www.thehindubusinessline.com/opinion/columns/slate/all-you-wanted-to-know-about/article25656136.ece#
https://www.rbi.org.in/scripts/FS_Notification.aspx?Id=10921&fn=2&Mode=0
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2401842
https://blog.ipleaders.in/laws-on-insolvency-before-and-after-the-ibc/
https://taxguru.in/income-tax/recovery-debts-due-t-banks-financial-institutions-act-1993-important-facts.html
https://economictimes.indiatimes.com/industry/banking/finance/banking/changes-challenges-and-interpretation-of-bankruptcy-law/articleshow/69017429.cms?from=mdr
https://www.drishtiias.com/loksabha-rajyasabha-discussions/in-depth-insolvency-and-bankruptcy-code-act
http://economyria.com/insolvency-bankruptcy-code-explained/
https://theleaflet.in/ibc-amendment-ordinance-2020-a-pandemic-of-bad-drafting/#:~:text=Based%20upon%20practical%20experience%2C%20the,the%20ongoing%20COVID
%2D19%20pandemic.