The Insolvency and Bankruptcy Code introduced by the Modi-led Government in 2016 played a key role in helping banks recover from the NPA crisis created by the Congress-led United Progressive Alliance (UPA) government, Finance Minister Nirmala Sitharaman said on Thursday.

She criticised the earlier Congress government at the Centre for ignoring corporate distress and said that the corporate distress proceedings were governed by a patchwork of legislations, which worsened rather than resolving issues.

On a social media post X, Sitharaman said, “Prior to the IBC introduced by PM @narendramodi-led government in 2016, corporate distress proceedings were governed by a patchwork of legislations, which worsened rather than resolving issues. The need for a modern corporate insolvency regime was highlighted by many expert groups over the years.”

Despite the crying need for enacting insolvency laws, the UPA regime consciously sought to reward its cronies at the cost of the banks and operational creditors who had to run from pillar to post for recovering their dues, she added.

“The IBC has played a key role in helping banks recover from the NPA crisis created by @INCIndia and its allies during the UPA year through ‘phone banking’ and indiscriminate lending. IBC has built trust and transparency in the financial system.”

“According to a report of the @RBI, the IBC continued as the key mechanism for banks to recover stressed assets – accounting by far for the greatest recovery among different channels in 2022-23 (43% of the total amount recovered). Post implementation of IBC, the gross non-performing assets (GNPA) ratio of Scheduled Commercial Banks dipped to a multi-year low of 3% and the net non-performing assets (NNPA) ratio to 0.7% (as of December 2023),” she added.

“By laying down governance norms for companies in distress, the IBC has taken corporate governance to new heights in the country,” the finance minister noted.

In her post, she referred to a report by the Raghuram Rajan-led Committee on Financial Sector Reforms (2008), and said “…because of the delays (sometimes endless), the system prevents the reallocation of assets to their best use, and greatly wastes asset values of impaired debtors, to the detriment of the economy. Closing a business also takes a long time in India—on average 10 years in India compared to 1.7 years in China.”