Recoveries under the Insolvency and Bankruptcy Code (IBC) continue to decline. The latest data from the Insolvency and Bankruptcy Board of India (IBBI) shows cumulative recoveries down to 36 percent as of June from about 40 percent in the previous quarter. But does the loss still remain the best tool in the hands of lenders?
Five years of Bankruptcy Law:
The Insolvency and Bankruptcy Code was hailed as a game changer for the bad loan resolution landscape in India and it is now in its fifth year. Here is the data from the IBBI to see what has happened so far.
There were 4,541 cases that were admitted into the NCLT and out of that so far nearly 63 percent have been closed and 38 percent are still ongoing. Now of these only 14 percent have found a resolution, and nearly half of them have actually ended up in liquidation. However, 75 percent of the companies that ended up in liquidation were already sick or defunct, so the chances of their recovery even under IBC was very low, to begin with.
There were nearly 126 new cases in the last quarter ending June, and nearly 533 in FY20-21, which is the year when IBC remained in suspension and so this number looks lower.
There have been some recent instances of large haircuts by lenders, like in the case of Jet Airways and Videocon, which have cast a shadow on the recovery under IBC.
The data shows recovery by financial creditors under the code fell to nearly 36 percent as of the quarter ending June. This is a cumulative number compared to a little over 39 percent in the previous quarter. It is still higher than the same period last year, but lower than the pre-COVID levels of about 45 percent.
The important question is does IBC still remain the best tool for recovery? - It certainly seems so when you compare it with the other tools of resolution like the DRT or the SARFAESI.
The other big area of concern has been the long delays in what was supposed to be a time-bound resolution process. According to the data, 75 percent of the ongoing cases have already exceeded 270 days. And the ones that have been resolved took more than 400 days on average, versus a maximum period of 330 days prescribed by law.
So, while there's a lot left to be desired when it comes to IBC, experts still believe that it has put control back in the hands of lenders and improved credit discipline. It also continues to evolve. This is only a five-year-old law at the end of the day but all said and done, it remains the best tool that banks currently have.
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