Drop in Banks’ recoveries from IBC Resolution

There is a decline in the banks’ recoveries from Bankruptcy Code.

• This is due to demand for resolution of sick companies under the Insolvency and Bankruptcy code has diminished.
• However, there is a fear that companies may come under control in due course, has made them to approach banks for a one-time settlement under Section 12(A) of the Bankruptcy and Insolvency code.

Reasons for Low Recovery

1. Data from IBBI (Insolvency and Bankruptcy Board of India) reveals that till September Financial creditors have only got 25% of their claims under the code.
2. This ratio has increased to 90% in the single quarter ended December 2018, was followed by 100% realisation in the Binani Cements case, however showed a downward trend.
3. Although, the high interest for certain sectors like Cement and Steel companies are high, they are only marginal in other cases since the quality of assets, scalability of operations and sluggish economy has contributed for the factor related to interest.
4. Some inherited accounts have untenable portion of debts and are not viable.
5. The delay has sentimentally resulted in lower realisation.
6. The promoters appear to be more interested in pay up and settlement of cases.
7. Data of IBBI also adds that out of 142 cases closed, 63 have been withdrawn under Section 12(A), which permits withdrawal of insolvency proceedings against a debtor provided at least 90% of the committee of creditors (CoC) agree.

Bankers’ Opinion:

Bankers are of the opinion

• The lower recovery should not be taken as a trend since they include certain old chronic account wherein there was no scope of recovery in the past.
• This should be seen as an enabler to recovery of new cases and not old cases.
• There is no scope of recovery in the legacy cases and some haircut option should be considered on these cases.
• Once these cases move out of the system good prospects of recovery can be foreseen. However, there are growing concerns in the process.

Credit Suisse in its report has added that the average time taken for a resolution now is around 350 days.