The number of fresh cases admitted for resolution has seen a decline for only the second time since the enactment of the Insolvency & Bankruptcy Code (IBC), indicating that there may be fewer companies in the system that are under financial stress.
But it is also unfavorable as nearly 55% of the companies that come under IBC have gone into liquidation, with just 14% ending up with a resolution plan, latest data released by the Insolvency & Bankruptcy Board of India (IBBI) showed. What is also worrisome is that in 20 cases during April-June quarter where a resolution could be achieved, financial creditors managed to realise only 14% of their claims, which in other words means that they had to sacrifice 86% of the loan claims that had been admitted. Compared with overall experience, this is just a third of claims that the financial creditors or banks have realised over the last two-and-a-half years.
Till June, total claims of financial creditors that were admitted in the cases that have been settled added up to £25.2 billion, while the value realised was £10.8 billion. In June quarter, against admitted claims of close to £3.15 billion, the realisable value was estimated at £436.7 million. “There are sectors such as power, where the offers are very low. The option is to either settle with a steep haircut or simply let the asset die,” said an executive with a leading asset reconstruction company.
A banker added that some of the assets where a resolution was possible during the last quarter had seen value erosion, resulting in low bids. In at least three cases - Calyx Chemicals & Pharma, Deccan Chronicle Holdings and Tecpro Systems - the value realised was around 5%. There are four companies - Tehri Iron & Steel Castings, JD Aneja Edibles, Shivam Fragrances and Dadi Impex - where financial creditors will extract more value than their claims.
The IBBI data also reflected that at the end of June, 666 of 1,292 ongoing cases had exceeded the 180-day deadline for resolution, while 445 - or more than one-third - cases had gone beyond the maximum permissible 270-day period. With the government setting a 330-day deadline, including legal challenges, bankers fear that more companies would face liquidation, although the amendment to the IBC does fix more stringent deadline.