India allowed the resumption of bankruptcy filings, ending a year-old suspension created to protect firms from the impact of the virus pandemic, people with knowledge of the matter said.
The law is in operation after an executive order halting bankruptcy proceedings expired on March 25, said the people, asking not to be identified as the matter is not public. The move follows a court ruling earlier this week that mandated banks to resume classifying bad debt, unwinding another pandemic-era measure.
The two steps together will give investors a clearer sense of the impact of the pandemic on the asset quality of local banks. The resumption of bankruptcies also reopens avenues for lenders to collect soured debt from delinquent borrowers, allowing them more tools to manage one of the world’s worst bad loan piles.
The Reserve Bank of India expects that 13.5% of outstanding loans at local lenders could turn sour by September from 7.5% a year earlier: that would be the highest level since 1999.
The lifting of the halt comes even as a resurgence in virus cases threatens the nascent economic recovery. It could spark a wave of new insolvencies, pent up from last year when businesses were hurt by India’s first economic contraction in decades.
Prime Minister Narendra Modi’s government last year halted the process of initiating most fresh insolvency proceedings to insulate cash-strapped borrowers hit by the pandemic for six months starting March 25, and that was extended twice during the year.