FM commends Insolvency and Bankruptcy Code for NPA recoveries

FM observes definite improvement in lending and borrowing behaviour

The finance minister Arun Jaitley has written in his personal blog about two years of Insolvency and Bankruptcy Code, while commending it from strong recoveries of bad loans. The finance minister stated that so far 1322 cases have been admitted by NCLT, while 66 have been resolved after adjudication and 260 cases have been ordered for liquidation.

In 66 resolution cases, realization by creditors was around Rs 80000 crore. As per NCLT database, in 4452 cases were disposed at pre-admission stage and the amount apparently settled was around Rs 2.02 lakh crore.

Some of the big 12 cases such as Bhushan Power and Steel and Essar Steel India are in advanced stages of resolution and are likely to be resolved in this financial year in which realization is expected to be around Rs 70000 crore.

As per the finance minister, there has been increase in conversion of NPAs into standard accounts and decline in new accounts falling in NPA category, which shows a definite improvement in the lending and borrowing behaviour.

An Expert Committee was appointed, which submitted its Report in 2015 recommending the IBC. Immediately, a Bill was introduced in Lok Sabha and referred to a Joint Committee of Parliament. The Parliamentary Committee displayed its wisdom and submitted a report recommending some changes in the Legislation. The IBC was approved by both Houses of Parliament in May, 2016. This was the quickest Economic legislative change that I have seen being made by Parliament. The NCLT was immediately constituted, the Insolvency Bankruptcy Board of India was established and the regulations were framed. By the end of 2016 corporate insolvency cases were being received by the NCLT.

The NCLT has become a trusted forum of high credibility. Those who drive the companies to insolvency, exit from management. The selection of new management has been an honest and transparent process. There has been no political or Governmental interference in the cases. The recoveries of monies parked in insolvent companies has taken place through three methods : firstly, after the introduction of Section 29(A) such companies are paying up in anticipation of not crossing red line and being referred to NCLT. As a result, the banks have started receiving monies from the potential debtors who pay in anticipation of the default. The defaulters know well that once they get into IBC they will surely be out of management because of Section 29(A). Secondly, once a petition of the creditor is filed before the NCLT many debtors have been paying at the pre-admission stage so that the declaration of insolvency does not take place. Thirdly, many major insolvency cases have already been resolved and many are on the way of resolving. Those which cannot be resolved move towards liquidation and the banks are receiving the liquidation value.

The functioning of NCLT and the Tribunal has led to a large number of cases being filed. The NCLT is over-crowded, its capacity is now being further enhanced. Realizing the urgency, the Supreme Court has pronounced several judgements expeditiously, laying down the Law on the new Legislative provisions. The law declared by the Supreme Court will go a long way in interpretation and clarifying the ambiguity, if any. This will expedite the process further in coming days.

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