The Insolvency and Bankruptcy Code, 2015 was introduced in Lok Sabha yesterday, as a Money
Bill [Clarification: This is as per news reports.* The text of the Bill does not indicate that it is a Money Bill]. In this context, we briefly outline the various types of Bills in Parliament, and highlight the key differences between Money Bills and Financial Bills. What are the different types of Bills? There are four types of Bills, namely (i) Constitution Amendment Bills; (ii) Money Bills; (iii) Financial Bills; and (iv) Ordinary Bills. What are the features of each of these Bills?
of India. Bills that only contain provisions that are incidental to these matters would also be regarded as Money Bills.[iii]How are these bills passed?
How is a Money Bill different from a financial bill? While all Money Bills are Financial Bills, all Financial Bills are not Money Bills. For example, the Finance Bill which only contains provisions related to tax proposals would be a Money Bill. However, a Bill that contains some provisions related to taxation or expenditure, but also covers other matters would be considered as a Financial Bill. The Compensatory Afforestation Fund Bill, 2015, which establishes funds under the Public Account of India and states, was introduced as a Financial Bill.[vii] Secondly, as highlighted above, the procedure for the passage of the two bills varies significantly. The Rajya Sabha has no power to reject or amend a Money Bill. However, a Financial Bill must be passed by both Houses of Parliament. Who decides if a Bill is a Money Bill? The Speaker certifies a Bill as a Money Bill, and the Speaker’s decision is final.[viii] Also, the Constitution states that parliamentary proceedings as well as officers responsible for the conduct of business (such as the Speaker) may not be questioned by any Court.[ix]
[i]. Article 368, Constitution of India. [ii]. Article 110, Constitution of India. [iii]. Article 110 (1), Constitution of India. [iv]. Article 117, Constitution of India. [v]. Article 107, Constitution of India. [vi]. Article 109, Constitution of India. [vii]. The Compensatory Afforestation Fund Bill, 2015, introduced in Lok Sabha on May 8, 2015, http://www.prsindia.org/billtrack/the-compensatory-afforestations-fund-bill-2015-3782/. [viii]. Article 110 (3), Constitution of India. [ix]. Article 122, Constitution of India. [*Note: See Economic Times, Financial Express, The Hindu Business Line, NDTV ,etc.]
At noon today, the Finance Minister introduced a Bill in Parliament to address the issue of delayed debt recovery. The Bill amends four laws including the SARFAESI Act and the DRT Act, which are primarily used for recovery of outstanding loans. In this context, we examine the rise in NPAs in India and ways in which this may be dealt with.
I. An overview of Non-Performing Assets in India
Banks give loans and advances to borrowers which may be categorised as: (i) standard asset (any loan which has not defaulted in repayment) or (ii) non-performing asset (NPA), based on their performance. NPAs are loans and advances given by banks, on which the borrower has ceased to pay interest and principal repayments. 
In recent years, the gross NPAs of banks have increased from 2.3% of total loans in 2008 to 4.3% in 2015 (see Figure 1 alongside*). The increase in NPAs may be due to various reasons, including slow growth in domestic market and drop in prices of commodities in the global markets. In addition, exports of products such as steel, textiles, leather and gems have slowed down.[i] The increase in NPAs affects the credit market in the country. This is due to the impact that non-repayment of loans has on the cash flow of banks and the availability of funds with them.[ii] Additionally, a rising trend in NPAs may also make banks unwilling to lend. This could be because there are lesser chances of debt recovery due to prevailing market conditions.[iii] For example, banks may be unwilling to lend to the steel sector if companies in this sector are making losses and defaulting on current loans. There are various legislative mechanisms available with banks for debt recovery. These include: (i) Recovery of Debt Due to Banks and Financial Institutions Act, 1993 (DRT Act) and (ii) Securitisation and Reconstruction of Financial Assets and Security Interest Act, 2002 (SARFAESI Act). The Debt Recovery Tribunals established under DRT Act allow banks to recover outstanding loans. The SARFAESI Act allows a secured creditor to enforce his security interest without the intervention of courts or tribunals. In addition to these, there are voluntary mechanisms such as Corporate Debt Restructuring and Strategic Debt Restructuring, which These mechanisms allow banks to collectively restructure debt of borrowers (which includes changing repayment schedule of loans) and take over the management of a company.
II. Challenges and recommendations for reform
In recent years, several committees have given recommendations on NPAs. We discuss these below.
Action against defaulters: Wilful default refers to a situation where a borrower defaults on the repayment of a loan, despite having adequate resources. As of December 2015, the public sector banks had 7,686 wilful defaulters, which accounted for Rs 66,000 crore of outstanding loans.[iv] The Standing Committee of Finance, in February 2016, observed that 21% of the total NPAs of banks were from wilful defaulters. It recommended that the names of top 30 wilful defaulters of every bank be made public. It noted that making such information publicly available would act as a deterrent for others.
Asset Reconstruction Companies (ARCs): ARCs purchase stressed assets from banks, and try to recover them. The ARCs buy NPAs from banks at a discount and try to recover the money. The Standing Committee observed that the prolonged slowdown in the economy had made it difficult for ARCs to absorb NPAs. Therefore, it recommended that the RBI should allow banks to absorb their written-off assets in a staggered manner. This would help them in gradually restoring their balance sheets to normal health.
Improved recovery: The process of recovering outstanding loans is time consuming. This includes time taken to resolve insolvency, which is a situation where a borrower is unable to repay his outstanding debt. The inability to resolve insolvency is one of the factors that impacts NPAS, the credit market, and affects the flow of money in the country.[v] As of 2015, it took over four years to resolve insolvency in India. This was higher than other countries such as the UK (1 year) and USA (1.5 years). The Insolvency and Bankruptcy Code seeks to address this situation. The Code, which was passed by Lok Sabha on May 5, 2016, is currently pending in Rajya Sabha. It provides a 180-day period to resolve insolvency (which includes change in repayment schedule of loans to recover outstanding loans.) If insolvency is not resolved within this time period, the company will go in for liquidation of its assets, and the creditors will be repaid from these sale proceeds.
[i] ‘Non-Performing Assets of Financial Institutions’, 27th Report of the Department-related Standing Committee on Finance, http://164.100.47.134/lsscommittee/Finance/16_Finance_27.pdf. [ii] Bankruptcy Law Reforms Committee, November 2015, http://finmin.nic.in/reports/BLRCReportVol1_04112015.pdf. [iii] Volume 2, Economic Survey 2015-16, http://indiabudget.nic.in/es2015-16/echapter-vol2.pdf. [iv] Starred Question No. 17, Rajya Sabha, Answered on April 26, Ministry of Finance. [v] Report of the Bankruptcy Law Reforms Committee, Ministry of Finance, November 2015, http://finmin.nic.in/reports/BLRCReportVol1_04112015.pdf. *Source: ‘Non-Performing Assets of Financial Institutions’, 27th Report of the Department-related Standing Committee on Finance, http://164.100.47.134/lsscommittee/Finance/16_Finance_27.pdf; PRS.
