Guarantor beware(Polity, GS-2, Law, The Hindu)

Guarantor beware(Polity, GS-2, Law, The Hindu)


Context:-  The Supreme Court judgment of:- upholding creditors’ right to proceed against personal guarantors to loans provided by them to a corporate borrower. This will help in lifting the uncertainty over the extent to which banks and other financial lenders can pursue.

Why this is a good move:-

  • Corporates are the guarantor in thousands of crore rupees.
  • When corporates will become liable then they will pressurise the debtors
  • In this case there will be successful execution of IBC code.
  • It will help the banks in recovering the loans
  • resolution plan for the corporate debtor does not extinguish the personal guarantor’s liability

How to solve the NPA issue in indian banking system

  • PARA a bad bank as recommended by the economic survey.
  • A comprehensive communication and a data scruitnise before lending
  • A clear communication between the banks so that same loan can’t be disbursed by the banks
  • A quick resolution process.
  • Banks have to accept losses on loans so that RBI will get to know about the real situation.
  • With out fear of 3C i.e. CVC, CBI, Courts
  • The Indian Banks’ Association has set up a six-member panel to oversee resolution plans of lead lenders. To expedite resolution, more such panels may be required.

An alternative is to set up a Loan Resolution Authority, if necessary through an Act of Parliament.

Download Daily Current Affairs of 24th May 2021


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