A plan regarding to give debt waiver for “small distressed borrowers” under the insolvency law framework is proposed by the government.
The waiver, as part of individual insolvency would be for the most distressed within the EWS and it will be as a part of ‘Fresh Start’ provisions under the Insolvency and Bankruptcy Code (IBC).
Corporate affairs secretary Injeti Srinivas said that “If you have once availed the fresh start, then you cannot avail it again for five years. We have worked out all safeguards to the satisfaction of the microfinance industry.
As per the IBC, there are various thresholds for ‘Fresh Start’, including
- The gross annual income of the debtor does not exceed INR60,000
- The aggregate value of the debtor’s assets should not be more than INR 20,000 and that the aggregate value of the qualifying debts does not exceed INR 35,000.
- Among others, such a person should not be having an own dwelling unit, irrespective of whether it is encumbered or not, according to the IBC.
The idea is not to destroy the microfinance industry but to give waiver for small distressed borrowers from debt obligations based on criteria. The criteria has been discussed at length with the microfinance industry.
Further, discussions have been held with the microfinance industry regarding criteria for the proposed waiver for small distressed borrowers from the economically weaker section (EWS) and their concerns are being duly factored in.
Srinivas told, at a national level, over a three to four years period, it will be not more than INR 10,000 crore.
Also, the provisions of IBC related to personal guarantor to corporate debtor would be coming into effect immediately, followed by those related to partnership and proprietorship.
The IBC provides the framework to deal with distressed assets through a market-driven and time-bound process.