MUMBAI: Indian banks and companies have filed claims worth Rs 4,089 crore in the past three months under the Insolvency and Bankruptcy Code, which seeks to ensure time-bound settlement of insolvency. The code that came into effect in December has given the lenders a new tool to counter the problem of rising non-performing assets (NPAs), which soared to Rs 6.97 lakh crore in the quarter to December.
“Bankruptcy code is the best option for bankers and if the timelines are met, this will deliver maximum results,” said H Jayesh, cofounder at law firm Juris Corp. Data accessed by ET shows that 41 cases were registered for insolvency resolution with the National Company Law Tribunal (NCLT), the adjudicating body under the new code, between December and February.
December and February. Of these, 11 have been admitted by NCLT. Eight of these eleven cases have been filed by corporate debtors, the largest being a Rs 1,405 crore loan taken by Hyderabad Kamineni Steel & Power India from seven public sector banks— Indian Bank, Oriental Bank of CommerceBSE 1.71 %, Allahabad BankBSE 1.37 %, Indian Overseas BankBSE 0.19 %, Central Bank of IndiaBSE -0.27 %, Andhra BankBSE 0.83 % and Bank of Maharashtra—and JM FinancialBSE 0.79 % Asset Reconstruction.
The RBI had allowed banks to take management control of a defaulting company by converting their loans into equity through the strategic debt restructuring (SDR) scheme introduced in 2015. In 2016, the scheme for sustainable structuring of stressed assets, also involving conversion of loans into equity, was announced. But both these schemes failed to take off, thus resting all hopes of fasttrack corporate insolvency resolution on the new code.
Adoption by banks has been slow so far because as creditors, they want to look at all options before filing for insolvency. Also, a case registered under the code requires a turnaround plan for the business, failure of which could result in liquidation of the company in 180 days.