Debt resolution under IBC process: Banks take 47% haircut in RBI first list

With debt resolution under the Insolvency and Bankruptcy Code process picking up, banks have seen Rs 550 billion of recoveries at an average 47% haircut in the Reserve Bank of India’s (RBI) first list announced in June 2017. The pick-up in recoveries to 4% of loans in June quarter was also primarily on account of IBC-led resolutions.  According to Credit Suisse, though the IBC process is time-bound (180 days extendable to 270 days), many of the larger cases have witnessed delays. 

However, the usual 300-day timeline is still significantly superior to the other court-driven processes (DRT, SARFAESI) where it takes even a decade for the entire process to get over. In the past, the RBI also attempted several restructuring/dispensation for bank-led resolution  processes. However, these did not yield strong results, with 100% of SDR and 70% of corporate restructuring faltering or failing.

NCLT capacity is a constraint

Lack of capacity at the NCLTs is turning out to be a big concern for the investors as well as lenders. With now over 2,200 cases filed,  they appear to be getting clogged-up. Among the 28 companies under the 2nd list, 10 with 40% of debt are yet to be admitted to the NCLT. 

None of the cases have seen any resolutions. A couple are close to being resolved while a few are likely to go into liquidation. With an estimated additional 60-65 large companies expected to be referred to the NCLT following the  February 12 circular of the RBI, the timelines are likely  to be further delayed.

Here is the status of the first 12 companies: