Ideally, in line with international best practice, out-of-court restructuring may be the right medicine at ‘pre-default’ stage, as soon as the first signs of incipient stress are evident or when covenants in bank loans are tripped by the borrowers. Once a default happens, the IBC allows for filing for insolvency proceedings, time-bound restructuring, and failing that, liquidation.
As the recent global crisis also demonstrated, stable retail sources of funding as against reliance on borrowed funds can greatly enhance the soundness and resilience of financial institutions and can reduce volatility in earnings. Low income savers and borrowers tend to maintain steady financial behaviour through the business cycle both in terms of deposit keeping and borrowing.