Having resolved big-ticket insolvency cases like Essar and Bhushan Steel, bankers are now looking forward to a recovery rate of not more than 20-30 per cent.
Till December, 2019, realisation by financial creditors (FCs) under the 190 resolution plans totalled Rs 1.52 trillion or 43.14 per cent; total admitted claims was around Rs 3.51 trillion, according to data from the Insolvency and Bankruptcy Board of India (IBBI). Of the total amount of realisation, 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, banks are not anticipating good recovery from IBC, including cases referred for resolution under the Reserve Bank of India's (RBI's) second list, which included 28 companies.
A senior banker with a public sector bank said, not more than 30 per cent recovery was expected from 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, resolution amount is coming less than 30 per cent, and even less than 15 per cent. Liquidation value is abysmally low," said a senior banker.
In case of power manufacturing units, why was it that the valuations were low, questioned the banker. The banker, however, said that banks might still prefer IBC to settlement because of the transparency in the method.
However, according to Mrutyunjay Mahapatra, MD and CEO of Syndicate Bank, IBC has helped improve the credit culture and the overall resolution amount should go up as in old cases in there is a significant erosion of value due 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," he said.
"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 would 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 companies and the industry they belong to - whether in a downcycle or upcycle.
For instance, the 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 said.
However, some analysts believe that the key to ensuring that there is no value destruction in the asset will be timely resolution. Of the 1,961 ongoing corporate insolvency resolution processes (CIRP), 635 had breached the 270-day timeline till December 31, 2019.