IBC recovery rate flat at 43% in Q4, may fall further

Insolvency and Bankruptcy Code 2016 was touted as a panacea for all the bad loan problems of banks, but two years after its enactment the results seem to be discouraging.

The data from the Insolvency and Bankruptcy Board of India (IBBI) show that the recovery rate under IBC was around 40% to 45% on an average in the first two years of its inception and 43% for the January-March 31, 2019, quarter.

"But this figure will fall further as many of the good and large cases are already accounted for in these numbers. Without underlying assets like a factory or other assets, it is unlikely that the IBC will have high recoveries," said a banker dealing with NCLT cases for his bank.

In Bhushan Steel, which was taken over by a Tata company, bankers recovered 63% of the debt of Rs 56,022 crore, in Jyoti Structures they could recover over 50% of the debt. Electrosteel, which had a debt of Rs 13,175 crore was taken over by Anil Agarwal-promoted Vedanta for Rs 5,320 crore with a haircut of 40%, while in Adhunik Alloys the recovery for banks was 52% for a debt of Rs 756 crore.

These deals were better than the textile company Alok Industries, which had a debt of Rs 29,523 crore but the banks could only recover 17% of the debt. Reliance Industries along with JM Financial Asset Reconstruction company took it over by paying just Rs 5,052 crore.

During the fourth quarter ended March 31, banks had referred claims up to Rs 1,73,359 crore, but the realisable value was just Rs 74,497 crore which works out to a recovery rate of 43%. This included debt from companies like Jyoti Structures, Alok Industries and Dhanalaxmi Paper Mills.

Banks and companies have referred 3,918 cases to the National Company Law Tribunal (NCLT) since the IBC 2016 came into force in December 2016. Of this, only 1,858 cases got admitted into the IBC courts. The resolution process started in only 94 cases, while liquidation has commenced in 378 cases.

"Most cases are getting referred when all the assets of the company are lost and it is deep in debt and has no tangible securities," said a banker who is looking at the cases being referred to the NCLT. Of the cases admitted, about 772 cases came from the manufacturing sector, 359 from the real estate sector and 202 cases were admitted from the construction sector.

A WIDE GULF

• During the fourth quarter, banks had referred claims up to Rs 1,73,359 crore, but the realisable value was just Rs 74,497 crore which works out to a recovery rate of 43%
   
• Banks and companies have referred 3,918 cases to the National Company Law Tribunal since the IBC 2016 came into force in December 2016