Sunday, October 2, 2022

Bad Loan Recovery Gets Doubled Under IBC Says Crisil

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PW Bureau

In 2018-19 total recovery under the mighty Insolvency and Bankruptcy Code has gone beyond Rs. 70,000 Cr which is almost half when it comes to various traditional recovery mechanisms other than IBC

New Delhi: This is what happens when government give open hand to bank and recovery mechanism to perform their duty. Using the Insolvency and Bankruptcy code (IBC) instrument, banks and financial institutions have been able to recover more than 70,000 Cr in 2018-19. Which is almost double than what other recovery mechanisms like Debt recovery tribunal (DRT) and Lok Adalats could recover during the same FY, reports Crisil. The traditional instruments could recover 35,500 Cr in FY 2018-19.

“The recovery rate for the 94 cases resolved through IBC by fiscal 2019 is 43%, compared with 26.5% through earlier mechanisms. What’s more, the recovery rate is also twice the liquidation value for these 94 cases, which underscores the value maximisation possible through the IBC process,” said Gurpreet Chhatwal, President of CRISIL Ratings.

IBC is quicker and mightier

The IBC has brought about tremendous results since it was legislated three years ago. It is faster and mighter than the previous bad loan recovery mechanisms. Bank officials feel more empowered and the borrower who is evading loan knows it is not possible to evade loans for a longer period of time. It has been able to clear the log jams created because of deficiencies in other instruments. In a way, IBC has shifted the balance of power to the creditor from the borrower.

“Recovery through the IBC was Rs 70,000 crore in fiscal 2019 – or twice the Rs 35,500 crore recovered through other resolution mechanisms such as the Debt Recovery Tribunal, Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act and Lok Adalat – in fiscal 2018”, the Crisil report said.

Challenge is to keep with the timeline

Resolution timelines under IBC are still a challenge that needs to be addressed. While the average resolution timeline for cases resolved through the code is 324 days, it is still above the 270 days set out in the Code. However, if we look at the cases resolved through other instruments, the average time taken goes beyond 4 years. Still, timing is something that needs to be improved given the kind of powers IBC bosts of. As on March 31, 2019, there were 1,143 cases outstanding under the IBC of which resolution in 32 per cent of the cases was pending for more than 270 days. Except for the challenge related to the timeline, the implementation of the IBC process is largely on track, Crisil report added.

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