Govt eyes IBC route for STC, PEC closure

New Delhi: The government will have a relook at the closure of State Trading Corporation of India Limited (STC) and PEC Limited through the Bankruptcy Code, the first instance of pursuing closure of central public sector enterprises or CPSEs through this mechanism. Both these firms are categorised as a nonperforming asset or NPA with lenders.

A senior government official confirmed that the closure of these two firms under the ministry of commerce and industry is now being examined through the Insolvency and Bankruptcy Code (IBC) mechanism.

"Last month, after discussions at the level of the Prime Minister Office (PMO), it was decided to explore this route while also taking into consideration the existing guidelines for closure of sick and loss-making CPSEs," he said, adding that inter-ministerial discussions involving the finance, commerce and law ministries are now being pursued.

A cabinet note on this matter is also being discussed.

"We will examine the possible options and challenges involved because this would be the first such case," he added.

A senior bank executive said closure through IBC route of state-owned firms will set a bad precedent, and may impact their lending strategies to government-owned firms. "That means there is no implied sovereign guarantee while extending credit to CPSEs, and that they should be treated at par with private sector firms. This will impact the ratings of these firms in the short term, and raise questions on government backing in these companies."