Page 51 - Banking Finance March 2022

FEATURE

IBC’S 2021

JOURNEY

T hought passed by the Parliament in May 2016, of the committee of creditors. The joint lenders or the

consortium are often overburdened by the NCLT and NCLAT
the Insolvency and Bankruptcy Act (IBC), picked
and the challenges posed by promoters who are unwilling
up momentum only when RBI recommended 12
significant cases for IBC.
to lose control of their companies. In addition, the Covid-19
global pandemic for more than the last year-and-a-half has
The first case of the substantial takeover was Bhushan Steel, also contributed to a substantial delay in the process of
wherein Tata Steel bought it in the resolution process for resolution, besides adding to more stressed assets. Still, the
Rs. 32,500 crore with a 60 per cent haircut by lenders. Over time taken is far better than the average 4 to 4.5 years
time, the government tried to proactively make changes to earlier. The future will be better as the current cases include
the code to uphold the spirit of the code. One such the hold (BIFR) cases. The goal of IBC is an early resolution
amendment was the introduction of Section 29A to stop with maximisation of value as envisaged in the code, besides
defaulters/defaulting promoters from bidding for companies revival of sick units. Though it is struggling to achieve the
undergoing the resolution process. Another was giving home same, it has not entirely failed.
buyers the status of a creditor. If implemented, the code,
as intended, will be a major milestone for the Indian Misses
landscape. When the bankruptcy code was brought in, there was much
hope that it would revive companies, recover public money
However, it has its fair share of shortcomings as of date. and protect jobs. It has undoubtedly given an effective tool
The key highlights, both positive and negative, are shown to recover loans but has not lived up to the expectations of
below: a time-bound recovery, except for particular big-ticket hits.
The view is also gaining ground that valuable companies are
Hits being bought over at low prices, leading to haircuts for banks
The code has succeeded in deterring the defaulting in some cases, even over 90 per cent. Also, there are cases
corporates and thereby enforcing financial discipline; where defaulting owners get back their companies cheap.
defaulting companies are taking steps to avoid the IBC and Lack of expertise among resolution professionals to perform
losing control. The IBC regime indicates a significant the complex task of reviving a company that has gone sick
improvement in recovery for financial creditors. It has an or substantially sick. RPs often do not have the expertise to
average recovery rate of 40-45 per cent in notable cases. run companies as a going concern. The bankruptcy code was
The earlier recovery rates were much below at about 25- something in need of the hours, and after years of discussion,
30 per cent. The process has taken more than 180 days, and it came into existence. Five years on, it is still in progress
with 90 days extension, 270 days as stipulated in the code. and needs considerable changes, both in the code and its
Part of the delay in resolution can be attributed to the implementation and, above all, the mindset of the creditors,
absence of buyers and the differences between members particularly financial creditors. (Source: Business Line)

BANKING FINANCE | MARCH | 2022 | 51