(Bloomberg) -- India’s corporate affairs ministry has extended suspension of new bankruptcy filings for three months from Friday, a statement from the ministry said.
Bankruptcy filings, that have been in progress from earlier this year, have been halted to help financially-strapped borrowers hit by the pandemic, stay out of court. The move comes as the government seeks to cushion an economy already contracting at the worst pace in decades from more damage.
The move has been challenged by banks, already saddled with one of the worst bad-debt ratios in the world. There have been concerns that any extensions to bankruptcy proceedings could make lenders balk at extending credit to businesses in Asia’s third-largest economy. The nation had already been grappling with a shadow banking crisis that started in 2018 and keeping money flowing to borrowers, which is key to reviving growth.
The earlier suspension of new bankruptcy filings was to end this week. Prime Minister Narendra Modi’s government in June had promulgated an ordinance prohibiting initiation of fresh insolvency proceedings against pandemic-hit companies for six months starting March 25.
Finance Minister Nirmala Sitharaman said last week that the bankruptcy law is aimed at keeping companies as going concerns rather than liquidating them. As such, given the fact that businesses have been hit hard by the virus outbreak, it would be difficult to find buyers if a large number of companies are forced into bankruptcy, she said.
There were 2,108 corporate insolvency cases as of June, of which some 1,094 cases have breached the 270-day time limit for resolution, government data show.
©2020 Bloomberg L.P.
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