Close to half of claims under IBC were settled in FY19: RBI

MUMBAI: Around half of the claims under the Insolvency and Bankruptcy Code (IBC) were settled in 2018-19, the latest RBI report showed, helping banks recover stressed assets more quickly.

As a percentage of claims, banks recovered on average 42.5% of the amount filed through the IBC in the financial year 2018-19, against 14.5% through the Sarfaesi resolution mechanism, 3.5% through Debt Recovery Tribunals and 5.3% through Lok Adalats, it said.

Against Rs 1.66 lakh crore claims involved under IBC, the recovery was Rs 70,819 crore. Through the Sarfaesi mechanism, it stood at Rs 41,876 crore. Recoveries through DRTs and Lok Adalats were Rs 10,575 crore and Rs 2,816 crore, respectively.

“The stipulated timeframe for resolution of stressed assets under IBC is significantly lesser than for other mechanisms,” said Kollegal Raghavendra, Chief Financial Officer, Bank of India.

“That there is a distinct disincentive for delayed resolutions under the mechanism is the primary motivation for banks to now refer cases to NCLT (National Company Law Tribunal).”

After rising for seven consecutive years, non-performing assets declined in 2018-19 and bad loans recognition neared completion and the slippage ratio improved.

With recovery through legal mechanisms going up, cleaning up of balance sheets via sale of stressed assets to asset reconstruction companies fell year-on-year.

“The entire process has also inculcated fear in the minds of promoters over defaults and delays in resolutions as whatever kingdoms they’ve established might be taken away. It has been a positive reinforcement of the overall credit culture as the paybacks are more efficient because these promoters don’t want to be dragged into the court over defaults,” said Raghavendra.

Even if recoveries do not happen within the stipulated time-frame, IBC is one of the most efficient modes of recovery.

“One of the reasons why NPAs are coming down is because there are real repayments happening because of the introduction of IBC mechanism for resolution of stressed assets,” said Sridhar Ramachandran, CIO, IndiaNivesh Renaissance Fund, which specialises in investing in turnaround companies.

“However, having said that, the process still requires some fine-tuning. The expertise of resolution professionals compared to the RPs in the UK or some other countries is still less. Secondly, the training of the judges of the NCLT courts and the speed at which cases are being disposed (of) is still not at desirable levels.”

Although two new benches of the NCLT are being set up, more benches and members are required.

Ramachandran said training of judges and expansion of infrastructure should be prioritised.

“There is a fear in the minds of the promoter which is helping the banks in recovering their dues quicker but the moment there is more proactiveness in training the judges, the mechanism should do well,” he said.