**Title:** Public Sector Banks Oppose Government’s IBC Proposal for CPSEs
**Meta Description:** Public sector banks express concerns over the government’s plan to use the Insolvency and Bankruptcy Code for stressed CPSEs, fearing complex debt resolutions.
**URL Slug:** public-sector-banks-oppose-ibc-proposal-cpses
**Headline:** Public Sector Banks Raise Concerns Over Government’s IBC Approach for Stressed CPSEs
The government is reconsidering its strategy for addressing the financial troubles of unviable central public sector enterprises (CPSEs), particularly in light of significant losses exceeding ₹21,000 crore among 55 CPSEs in FY24. A proposal to utilize the Insolvency and Bankruptcy Code (IBC) for these distressed entities has sparked apprehension among public sector banks, which worry that this could complicate the debt resolution process.
Executives from state-owned financial institutions have voiced their concerns, emphasizing that the government’s support and guarantees on CPSE borrowings, along with asset monetization, have facilitated smoother claim settlements without necessitating substantial debt write-offs. They fear that if the government proceeds with its IBC proposal, troubled CPSEs may be directed to the National Company Law Tribunal (NCLT), a venue known for lengthy resolutions involving numerous stakeholders.
The central government is currently reviewing the potential closure of State Trading Corporation of India Ltd and PEC Ltd, both identified as non-performing assets by lenders. Discussions regarding the IBC route for stressed CPSEs have taken place in meetings organized by the Department of Public Enterprises, involving other government bodies, including the Prime Minister’s Office.
A senior executive from a major public sector bank, who requested anonymity due to the sensitive nature of the issue, remarked, “The NCLT platform has proven effective for resolving various stressed asset cases. However, the situation with CPSEs is unique. When both lenders and borrowers are state-owned, the government should consider settling the entire dues through budgetary allocations or asset monetization, as many CPSEs possess valuable land and real estate.”
Another bank executive, whose institution is a leading lender to several CPSEs, expressed concerns that if these entities are taken to the bankruptcy tribunal, banks would face significant losses on their loans. Many loss-making CPSEs have been in this predicament for years and may struggle to attract viable buyers at the NCLT, leading to diminished valuations and substantial write-offs for lenders.
Despite the ongoing discussions, representatives from the finance and textiles ministries, the Department of Public Enterprises, the Department of Commerce, and the Prime Minister’s Office have not responded to inquiries regarding this matter.
In summary, as the government evaluates its approach to managing unviable state-run firms, public sector banks remain wary of the implications of adopting the IBC route, highlighting the need for alternative solutions that could mitigate potential losses.
**FAQ Section:**
**Q: Why are public sector banks concerned about the IBC proposal for CPSEs?**
A: Public sector banks fear that using the IBC for stressed CPSEs could complicate the debt resolution process, leading to lengthy legal proceedings and significant financial losses.
