Against Centre’s claim of Insolvency and Bankruptcy Code being flag-bearer of bad loan recovery, the Reserve Bank of India has said more than 75% cases solved by IBC were of companies who had already been declared sick with almost no financial worth.
“A granular analysis reveals that more than three-fourth of the cases closed by liquidation (163 out of 212) were earlier under the Board for Industrial and Financial Reconstruction (BIFR) or defunct or both and thus, the intrinsic value of most of these assets had
already eroded before they were referred to the IBC,” RBI said in its report on Trends and Progress of Banking in India.
Liquidation could be an efficient mode of resolution for debtors in default for long time, it said. Banks have been able to recover only Rs 4,900 crore worth of bad loans through IBC till March this year while the amount recovered through Sarfaesi was Rs 26,500 crore.
The experience so far has been encouraging with IBC providing resolutions to some large corporate debtors, the central bank said, adding the raw data suggests that the number of cases ending with liquidation is about four times higher than those ending with a resolution plan.
The central bank, however, said that the IBC, introduced in 2016, has provided a framework for time-bound insolvency resolution (180 days extendable by another 90 days) with the objective of promoting entrepreneurship and availability of credit while balancing the interests of all
Other than IBC, bankers recover their bad loans through SARFAESI Act, debt recovery tribunals (DRTs) and Lok Adalats.
The central bnak, however, hoped that going forward, as the IBC process matures, the proportion of cases filed by corporate debtors is expected to rise.
The government has introduced amendments in the IBC such as giving home buyers the status of financial creditors and exempting the resolution applicants of micro, small and medium enterprises (MSMEs) the existing promoters of MSMEs to participate in resolution process.
RBI said the amendments should strengthen the resolution process under IBC.