NEW DELHI • India won’t allow most companies to be tipped into bankruptcy for a year as authorities try to contain the economic fallout of the coronavirus outbreak.

Finance Minister Nirmala Sitharaman announced the plan yesterday as part of her speech to revive economic activity.

The move risks delaying the clean-up of the world’s worst stressed-loan ratio as creditors will be forced into lengthy debt resolution negotiations outside the bankruptcy framework. It may also slow fresh credit that’s vital to reverse the course of an economy set for a rare contraction as the pandemic stalls economic activity at jewellers to developers.

Bankruptcies in India are expected to climb as the coronavirus outbreak hits distressed companies harder in Asia’s third-largest economy. India has been under a strict lockdown since March 25 with some easing on April 20 and then May 4.

“The challenge is it will be hard to find investors to put in resolution plans until the economy overcomes the aftermath and stabilises,” Sumant Batra, who heads the insolvency and corporate advisory practice at law firm Kesar Dass B & Associates, said before the decision.

“The government will need to come out with an urgent policy to ensure banks take prompt decisions of lending and restructuring.” — Bloomberg