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Bankruptcy framework needs to be more robust

Chief Economic Advisor (CEA) Krishnamurthy Subramanian said bankruptcy framework can be improved by enabling bankers to take economically efficient decisions. This is essential to develop the market for stressed assets in the post-pandemic era. This is particularly relevant for public sector banks (PSBs), in which individual executives may shy away from timely and bold decisions about the worth of an asset fearing an enquiry into the wisdom of it at a later date by regulatory or investigating agencies.

“The ability to arrive at a fair value of the loan with necessary haircut involves significant judgment,” the CEA said. “The eco-system of creative destruction is a very important part of any economy,” he added. However, he cautioned that analysing such decisions without appreciating its nuances and with a hindsight bias could lead to enormous risk aversion and can make it very difficult for bankers to do what is economically efficient.

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