Government defends Insolvency and Bankruptcy Code, blames banks for low recoveries

After facing criticism over the shrinking recoveries under Insolvency and Bankruptcy Code (IBC), the government has defended the law.

Government sources told CNBC-TV18 that recoveries are slower because banks are moving NCLT at a slow pace and are therefore compelled to take steep haircuts.

Under the banking regulations it is required that after 330 days of default the banks should move towards the NCLT under the IBC regime. However that has not been the case and data suggests that banks are only moving NCLT after 700 days. So this long wait, the government argues depresses the value.

Also the banks continue to levy penal interest as well, so there is principal, there is interest and then there is interest on interest which inflates the total claim presented before NCLT.

Sources also said that the government is working on streamlining the process and will be floating a consultation paper.