NEW DELHI: Narendra Modi government’s much-touted reform - the Insolvency and Bankruptcy Code (IBC) -- is floundering as recoveries under IBC continue to shrink further. Banks have taken on an average 67% haircut in all insolvency cases which have seen resolution so far.
In 458 cases resolved through IBC, creditors have recovered only Rs 2.5 lakh crore, or just 33% of the total admitted claims of Rs 7.5 lakh crore. The IBC, which is considered one of the most significant reforms by the Narendra Modi government for its potential to resolve large NPA cases in quick time but also making good recoveries from defaulting borrowers, has been marred by delays as well as low recovery.
Till March 2020, the average recoveries were to tune of 40-45%, but over the past one year, things have only gotten worse. The figure released by the insolvency regulator till December 2021, shows that of the 37 cases resolved in the October -December 2021 quarter, creditors could recover only 13% of the admitted claims of Rs 33,000 crore. Experts say the government needs to act swiftly and bring about paradigm shift if it wants to save IBC from becoming another piece of ineffective legislature.
Neeti Sikha, associate dean, Indian School of Public Policy, and who has closely worked with the government in bringing various changes in the IBC, says that the delay is due to several reasons -- due to lack of court capacity, absence of a well-developed market for the sale of stressed assets, and due to size of the debt in India. The average time taken for the resolution of cases has also been increasing every year.
The average time taken to resolve a case was 411 (against the 330 days timeline) till March 2020. Between April and December 2021, the average time taken to resolve 98 cases was 709 days. So far, 1,514 cases have gone into liquidation, which means these many companies could not find a bidder under IBC.