NEW DELHI: Despite numerous tweaks to the Insolvency and Bankruptcy Code (IBC), the government is worried over the low number of resolutions as well as delays during the admission stage itself. Officials pointed out that out of 1,292 ongoing resolution processes, 445 cases have passed 270 days since admission, while another 221 cases have crossed 180 days.
In fact, most of the cases have been lingering on, despite near-resolution in some cases. Take the case of Essar Steel and Bhushan Power & Steel. It has been more than 530 days since it was admitted to the National Company Law Tribunal (NCLT).
Each day of delay is estimated to cost lenders a staggering Rs 17 crore in interest losses. The Supreme Court said it will hear the case in detail and posted the matter for hearing on August 7. Similarly, the insolvent Bhushan Power & Steel has got a leg-up with the letter of intent being issued in JSW Steel’s favour. But, the company is still awaiting final judgement from NCLT for more than four months now. For one, the IBC permits a maximum of 270 days for settling a case.
The slow pace of resolution is keeping both the lenders and businesses at tenterhooks and adding to business sentiments being dampened, officials feel. Despite the introduction of a new circular from the Reserve Bank of India in June on resolution of stressed accounts, the data from Insolvency and Bankruptcy Board shows that a total of 2,162 cases have been registered under the insolvency process as of the first quarter of FY20.
However, not all the cases are fresh: some pertain to amalgamation, winding up and are transferred from the high court. “More than half of the total cases were admitted in FY19,” said M B Mahesh, financial analyst, Kotak Institutional Equities Research, said in a note. Only 120 cases were resolved with an average haircut of 55 per cent.
“We are expecting the latest amendments to the IBC code, setting stricter timelines, to help bring a large number of pending cases to closure. This will wipe out NPAs from bank books, in the cases where these firms are sold as going concern, save jobs and businesses as well as bring closure to failed businesses, businessmen and women,” said officials from the department of corporate affairs.
Recent estimates peg losses to banks’ income at about Rs 4,000 crore, primarily due to delay in the resolution of the 12 big accounts initially referred to IBC. Only four of these cases have been resolved so far since 2017 while the remaining are pending due to continuous litigation by some party or the other. Analysts believe the number of cases facing liquidation will see a significant increase in the next few quarters. They, however, envisage the pace of resolution would accelerate in financial year 2020, especially on some of the large marquee accounts in the steel sector.