Financial and operational creditors owe money to companies facing insolvency proceedings and so recovery has to be an important factor while achieving resolution of stressed assets, he noted.
“All of us clearly understand, as the lenders’ forum, that resolution is the primary objective of legislation like IBC. So, I don’t think that there is any moving away from that particular point.
“We will stay the course on those lines, despite the criticism that either we are being pushed more towards recovery, or we are just being mindful of a resolution, disregarding the recovery percentage,” Swaminathan said at an event organised by Indian Institute of Management, Ahmedabad.
He, however, added that while attempting a resolution, “we cannot lose sight of recovery”.
Swaminathan said if the narrative starts building towards haircuts, then it is likely that the lenders may not take any decision, which will lead to paralysis, and then the stressed units will go into liquidation.
“In such a case, the entire objective of legislation like IBC towards resolving corporate stress in an orderly manner will be defeated,” he pointed out.
Haircut taken by lenders as part of resolution plans approved under IBC refers to the shortfall in recovery to creditors as compared to their claims submitted in the insolvency process of a stressed borrower.
Speaking on providing interim financing to borrowers facing insolvency proceedings, Swaminathan said State Bank of India (SBI) has become the first bank to put a board approved interim financing policy in place.
“We have now put our metrics in place. The board has approved a policy that if a particular proposal satisfies certain metrics, the bank is willing to take that additional risk,” he said.
He expects other lenders also to follow suit.
There is also a need for looking at other players providing distressed asset or private debt funding to give interim finance to borrowers, he said.
“Rather than looking at the same set of lenders who have got their money already struck, are there any players who can come in for distressed asset funding, or litigation financing or priority debt funding, and may have a much higher risk appetite than a usual commercial bank?
“Maybe if we can develop that, it can be an alternative means of financing,” he added.