ICRA Ltd a rating agency said in a press note that Insolvency and Bankruptcy Code (IBC) is expected, to improve realisations for financial creditors to over Rs80,000 core by the fiscal year 2020, compared to about Rs 66,000 crore recoveries in 2018.
Particularly with a 32% increase in the number of on-going cases. Which have crossed the maximum allowed time of 270 days at NCLT, as of March 31, 2019. According to ICRA, the number of cases will continue to increase, especially from the operational creditors who are responsible for 50% of all admitted cases.
While the progress of IBC has been hampered due to these factors, realisation continues to increase in the financial sector. More steps should be taken to improve the overall efficiency of the process. The recent decision of setting up two more NCLT benches at Amaravati in Andra Pradesh and at Indore in Madhya Pradesh is a step in the right direction.
The resolution of the insolvency process for two large accounts- Essar Steel Ltd. And Bhushan Steel and Power Ltd, will majorly determine the realisation in FY20. The above two accounts are apart of RBI’s list of 12 largest defaulting companies which was announced in June 2017.
If the Corporate Insolvency Resolution process is completed successfully it will bring closure to eight companies from the RBI’s list and could help in strengthening the confidence in the IBC, despite the delay in the process most of them lasting more than 500 days.
RBI’s February 2018 circular, has been canceled by the Supreme court, that directed banks to recognize one-day defaulters and refer large defaulting entities (those with loans in excess of Rs. 2,000 crores) to NCLT if a resolution plan was not in place 180 days after the default. The resolution process stands to suffer because of this decision. It is now important for the RBI to find a new mechanism to ensure that the resolution of stressed assets happens in a disciplined manner.