The Ministry of Corporate Affairs (MCA) of the Indian government is working on a universal debt relief scheme for small borrowers. It is aimed to help small farmers, artisans, and micro enterprises to start and build businesses without the worry of falling under personal debt by making changes in the Insolvency and Bankruptcy Code (IBC).
According to the plan proposal, anyone below a specified income and asset threshold such as individuals with an annual income of Rs 60,000, outstanding loans of Rs 35,000 or less and assets worth Rs 20,000 or less will be eligible for the scheme. The plan is likely to be implemented within the next three months when the new government takes charge, according to sources. The results of the Lok Sabha election that is currently underway will be declared on 23 May.
A report by business daily ET quoted Corporate Affair Secretary Injeti Srinivas saying that the proposal will be a universal debt relief scheme for the poor. The Ministry of Corporate Affairs (MCA) is working on the scheme that will translate into one of the key changes considered for the Insolvency and Bankruptcy Code (IBC).
Srinivas said that there is no special dispensation for small borrowers in IBC now and the personal insolvency chapter requires some amendments.
“There are people who are genuinely poor and the law as it stands today provides the process (for them) is as rigorous as corporate insolvency resolution process. In this category now you will have millions and millions of people coming in. No system will be able to deliver,” he said.
The corporate affairs ministry is confident of finalising the scheme in a quarter, keeping it ready for the next government to roll out, Srinivas added. Srinivas said that the cost of the scheme is not likely to exceed Rs 20,000 crore. Additionally, it will benefit millions in the small-ticket loan bracket.
The scheme could be implemented through an online system within the IBBI with a dedicated team to examine and take a call on applications. Srinivas said that it is likely that there will be a ‘personal insolvency cell’ or a division in Insolvency and Bankruptcy Board of India (IBBI) to handle the debt relief, as mentioned in the daily.
While individuals in the specified bracket would be entitled to benefits from the scheme, individuals would also have the option to opt out of the same in order to protect their credit history. Srinivas said that the individual would be allowed the option to not avail the scheme because debt relief is likely to put a stigma on them and restrain them from availing future credit.
Opt out any time
The scheme will also allow for flexibility so that individuals can opt out to protect their credit history.
“If you can establish that your income is less than this (specified threshold) and assets are less than this (specified threshold) then by
way of entitlement you will get debt relief and you can make a fresh start,” Srinivas said.
“We will allow a person who doesn’t want to avail the scheme to exempt himself because debt relief will actually put some stigma on you or restraint on taking future credit,” he added and underlined that individuals will have the option to opt for insolvency.
“In a case like Bhushan Steel, we got Rs 34,000 crore, but even in this case there was a Rs 20,000 crore haircut. That was for
one corporate. There will be millions of people who will benefit from this scheme and maybe you will have a haircut of that sort,” he explained.