‘Banks expected to realise Rs 80K crore from IBC in FY20’
The Indian Express: May 11, 2019
Banks are expected to realise more than Rs 80,000 crore in FY20 from the Insolvency and Bankruptcy Code (IBC) compared to about Rs 66,000 crore realised in FY19, says a report.
The higher realisation in FY2020 would be driven by the expected conclusion of the corporate insolvency resolution process (CIRP) of two large accounts, Essar Steel Ltd and Bhushan Steel and Power Ltd, according to ICRA Ratings.
Both these accounts are part of the Reserve Bank of India’s list of the 12 largest defaulting companies announced in June 2017.
The progress of the CIRP under the IBC has been hampered over the past two years by the over-burdened NCLTs, innumerable litigations, defiant promoters and failing sectors. Even then, the process under the IBC has chugged on, albeit at a slower pace than envisioned.
As of March 2019, 715 cases of defaulting corporate debtors had been closed under the IBC. Of the same, a significant portion of corporate debtors (378 cases) were ordered into liquidation, while only 92 CIRPs yielded a resolution plan where the companies continue to operate as going-concerns.
Abhishek Dafria, vice president & co-head, Corporate Ratings, ICRA, said, “Successful completion of the CIRP for two accounts would bring closure to eight companies from the RBI’s list and could help strengthen the confidence in the IBC, despite the significant delays seen in the process with most of the CIRPs lasting more than 500 days.”
“However, despite the hurdles being faced by the IBC, we expect the number of cases being admitted to the National Company Law Tribunal (NCLT) to continue to increase, especially from the operational creditors who are responsible for 50 per cent of all cases admitted by the NCLT,” he added.
In April 2019, the Supreme Court cancelled the February 2018 circular of the Reserve Bank which directed banks to recognise one-day defaults by large corporates and refer the large defaulting entities (classified as those with loans in excess of Rs 2,000 crore) to the NCLT if a resolution plan was not in place 180 days after the default.
The RBI’s circular would have channelled the resolution process of the defaulting corporate debtors through the framework set by the IBC and thereby encouraged the creditors to approach the NCLT at an early stage of default.
The decision of the Supreme Court is a blow to the IBC and it is important for the RBI to find a new mechanism to ensure that resolution of stressed assets happen in a disciplined manner.
The NCLTs continue to remain heavily burdened as the number of cases being admitted continues to increase quarter-on-quarter with the highest quarterly admissions of 359 cases reported in Q4 of FY19.
As the timelines for the CIRP continue to get stretched, with 32 per cent of the ongoing CIRPs as on March 31, 2019, having already crossed the maximum allowed time of 270 days, the number of admitted cases that are yet to be resolved are only increasing.
“As of March 31, 2019, the number of ongoing CIRPs had increased to 1,143. In order to improve the overall efficiency of the process, more steps are desired. The recent decision to setup two more NCLT benches at Amaravati in Andhra Pradesh and at Indore in Madhya Pradesh is a step in the right direction.
“Over the long run, the IBC will continue to play an important role in the country’s economy as long as the key stakeholders remain proactive in disbursing their duties and continue to have confidence in the process,” Dafria said.
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