In a bid to provide the much needed succour to cash starved businesses and the MSME sector, the government has decided to relax a few norms under the Insolvency and Bankruptcy Code (IBC).

Some of the key announcements made in this regard by Finance Minister Narmala Sitharaman in the fifth and the final tranche of the economic stimulus package includes no new insolvency proceedings should be initiated for up to one year, depending on the pandemic situation. The corporate affairs ministry had already extended the minimum threshold by six months. The new rule would not apply to proceedings in cases already initiated.

Further, the government has said that any COVID-19 related debt incurred by a company would be kept out of the definition of default. The finance minister said that the corporate affairs ministry would be issuing a circular to notify the time period.

The minimum default threshold for triggering IBC proceedings has also been hiked from Rs 1 lakh to Rs 1 crore. This would give some breathing space to the MSME sector. A special insolvency framework for MSMEs would also be introduced. MSMEs account for more than 6 percent of the nation's manufacturing GDP and over 24 percent of the GDP from services activities.

CNBC-TV18 discussed with L Viswanathan, National Chair and Partner in the Finance, Insolvency and Projects Practice at Cyril Amarchand Mangaldas, how the future of the Insolvency and Bankruptcy Code is shaping up and most importantly, what effect would it have on banks and their balance sheets.

First Published:May 18, 2020 10:24 PM IST