Having resolved big-ticket insolvency cases like those of Essar Steel and Bhushan Steel, bankers are now looking at a recovery rate of not more than 20-30 per cent.
Till December 2019, realisation by financial creditors under the 190 resolution plans is Rs 1.52 trillion, or 43.14 per cent, while claims worth Rs 3.51 trillion were admitted, according to the data from the Insolvency and Bankruptcy Board of India.
Of the amount realised, around Rs 1 trillion is on account of just four steel companies: Essar Steel, Bhushan Steel, Bhushan Power & Steel and Electrosteel Steels.
However, from here on out, banks are not anticipating good recovery under Insolvency and Bankruptcy Code (IBC), including cases referred for resolution under the Reserve Bank of India’s (RBI’s) second list, which has 28 companies.
A senior official with a public sector bank said not more than 30 per cent recovery was expected under the RBI’s second list. Another top lender said except one case in which 50 per cent recovery was expected, lenders were looking to recover 25-30 per cent.
“The government has provided a very good piece of legislation, but the spirit in which it is implemented is not right at times. In some cases, the resolution amount is less than 30 per cent, sometimes even less than 15 per cent. Liquidation value is abysmally low,” said a senior banker.
They, however, said banks might still prefer IBC to settlement because of the transparency in the method.
According to Mrutyunjay Mahapatra, managing director and chief executive officer at Syndicate Bank, IBC has helped improve the credit culture and the overall resolution amount should go up because the old cases saw a significant erosion of value owing to ageing of assets.
“IBC has both curative and reformative value. Earlier, the promoter kept on exploiting methods, and there was no information asymmetry. Different lenders were given different data at times. In IBC, the resolution is timely. Going forward, the resolution value should improve.
“Also, IBC should not be judged solely on the basis of recovery. Any other method would have given the same amount,” said Mahapatra.
Abhishek Dafria, vice-president, ICRA, explained that realisation from resolution will be case-specific. “Some of the cases that were admitted were about a decade old, so the asset quality had deteriorated. One would expect that going forward, cases would be brought in by the creditors at the initial stages so that chances of realisation are better.”
Dafria also said that realisation would depend on company and the industry it belongs to — whether it’s in a downtrend or uptrend.
For instance, realisation from the steel companies was largely led by the improvement in international prices and the safeguard and anti-dumping duties brought in by the government to protect the industry.
“Realisations in future will also depend on the policy measures undertaken by the government to support industries that may be facing headwinds,” he further said.
However, some analysts said the key to ensuring that there is no value destruction in the asset would be timely resolution. Of the 1,961 ongoing corporate insolvency resolution processes, 635 had breached the 270-day timeline till December 31, 2019.