Photographer: Prashanth Vishwanathan/Bloomberg

India's Lower House of Parliament Approves Bankruptcy Bill

  • Proposal still needs to pass opposition-controlled upper house
  • Bill would unify more than four sets of overlapping rules

India moved a step closer to overhauling century-old laws that regulate insolvency amid a surge in bad loans.

The lower house of parliament controlled by Prime Minister Narendra Modi’s party passed the Insolvency and Bankruptcy Code, which aims to slash the time it takes to wind up a company or recover dues from a defaulter. The bill unifying more than four overlapping sets of rules still needs to pass the opposition-controlled upper house, which has blocked key Modi reforms like a national sales tax.

Once endorsed by parliament, the law will help Modi’s attempts to improve ease of doing business in Asia’s third-largest economy and aid banks in tackling the highest level of soured credit in 15 years. The law would give banks more confidence to lend to long-term projects such as building roads, ports and power plants, according to Reserve Bank of India Governor Raghuram Rajan.

Problem loans, which include bad debt, restructured loans and written-off assets, rose to $131 billion as of Sept. 30, central bank data show. That’s equal to 14.1 percent of total loans, the highest proportion in at least 15 years.

The legislation proposes an insolvency regulator, lays down the procedure for early identification of financial distress in companies, and prescribes time-lines for their revival or shutting down. Insolvency issues can be dealt with in as little as 90 days and a maximum of 270 days.

The current parliamentary session is scheduled to end on May 13.

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