Here's how the government’s new debt relief scheme for small business owners will work
The Ministry of Corporate Affairs, in conjunction with the Insolvency and
The “individual insolvency” scheme is slated to be the next big addition to India’s Insolvency and Bankruptcy Code (
Who all are eligible?
The scheme is primarily targeted at the country’s
Individuals with an annual income of ₹60,000 or less and assets worth up to ₹20,000 are eligible. The scheme extends to small borrowers with outstanding loan payments of up to ₹35,000.
The financial rationale behind the scheme is that that cost of recovering dues is more than the outstanding payments due.
Of course, it will likely be announced as a new bankruptcy reform once elections are over, which will earn the incoming administration some goodwill from the country’s poorest. This, in addition to the spate of cash transfer schemes for farmers, will also give a boost to rural demand.
How will it work?
A borrower that is on the cusp of default will have to make an application under the scheme. Thereafter, his or her case will be heard by a debt recovery tribunal that will take the creditor’s views into account.
If the borrower is deemed to be eligible for relief, his or her outstanding loans are waived. A record of this will, however, be documented in the borrower’s credit history.
Alternatively, the borrower and the lender might be able to negotiate a new repayment plan. Failure to repay will result in the liquidation of the borrower’s assets.
When will the scheme come into effect?
What is the cost of the scheme?
The scheme is expected to cost the Exchequer around ₹200 billion.
Politically driven, financially unsound: The loan waivers offered by India’s political parties will only serve to worsen the country’s bad loan crisis