Bank recoveries from IBC declining as demand for sick firms wanes

Even as more promoters are approaching banks with one-time settlement offers to prevent the takeover of their companies, the recoveries from bankruptcy cases are on the decline as demand for sick firms under the Insolvency and Bankruptcy Code falters.
 
The Economic Times analysed data from the Insolvency and Bankruptcy Board of India (IBBI) which showed that financial creditors could only get 25 percent of their claims under the code by September, 2018. Though the ratio increased in the quarter ended December 2018 to 90 percent,  led by the 100 percent realisation in Binani Cement case, the trend line is going downwards.
 
“Besides relatively high interest for certain sectors, like, cement and steel companies, there is only a marginal interest for other companies mainly because of the quality of assets, scalability of operations and the sluggish economy. Some of these legacy accounts have unsustainable portion of debts and hence not viable. The delays in the cases have impacted the sentiment which explains the lower realisation,” Babu Sivaprakasam, partner, ELP told the paper.
 
Meanwhile, promoters are making a beeline to settle their cases even if it means paying up a one-time settlement. Data from the board showed that out of the 142 cases closed, 63 have been withdrawn under Section 12(A) which allows withdrawal of insolvency proceedings against a debtor provided at least 90 per cent of the committee of creditors (CoC) agree, ET wrote.
 
Bankers claim that lower recovery may not be a trend as a lot of old legacy cases with little or no value are stuck in the process of resolution.
 
“This trend is temporary. The IBC should be seen as an enabler to recovery of new cases and not for the old legacy cases. These legacy cases do not have much of a recovery option left, so financial creditors will have to take some haircut. But as these cases move out of the system, we should expect the recovery to improve,” PR Rajagopal, executive director at Allahabad Bank was quoted by the newspaper as saying.
 
Meanwhile, Credit Suisse pointed out in a report recently that the bankruptcy resolution time in IBC has increased to an average of 350 days now.


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