Better recovery establishes efficacy of IBC in dealing with bank NPAs

After Tata Steel successfully bid for Bhushan Steel under the Insolvency and Bankruptcy Code by paying Rs 35,000 crore — or 78% of the total dues of Rs 45,000 crore — many believed that the resolution was just a flash in the pan.Sceptics said that such an outcome, where lenders recovered 78% of the total claims, was too good to be repeated in most cases. They might be right and such cases would be few and far between but resolutions under IBC has certainly raised hopes that the end result would be much better than under the previous recovery laws.

The latest quarterly report of the Insolvency and Bankruptcy Board of India (IBBI) reveals that of the 12 cases resolved during the January-March 2018 period, the average recovery as a percentage of total claims filed by financial creditors was as high as 69.7%. Of the total claims of Rs 4,405 crore admitted by financial creditors in these 12 cases, they recovered Rs 3,070 crore.

Of these 12 cases, Kohinoor CTNL Infrastructure owed the most — Rs 2,528 crore — to financial creditors. They recovered Rs 2,246 crore, or 89% of the total claims.There are three cases — Forward Shoes (owing Rs 120 crore), Trinity Auto Components (Rs 17.38 crore) and Propel Valves (Rs 1.71 crore) — where the financial creditors recovered almost the whole amount.  In two cases — Burn Standard Company (Rs 59 crore) and Shree Radha Raman Packaging (Rs 89 lakh) — the banks recovered more than the amount due.

The lowest recovery ratio, at 29%, was in case of Haldia Coke and Chemicals, which owed Rs 344 crore to banks and other financial creditors. Banks could recover only Rs 99 crore from this account.

The resolution of these 12 cases certainly raise hope in the efficiency of IBC especially after the first set of resolutions did not give the kind of result everyone was looking for. In the first 10 cases resolved under IBC, the average recovery rate was only 33%. In case of Synergies Dooray, the first case to be resolved through IBC, the recovery was as low as 5.6%.

However, the Bhushan Steel case and the 12 resolutions in the previous quarter give hope that IBC can indeed be a long-term solution to the banks’ non-performing assets (NPAs).businesstoday