Home Business Banks Take Rs 69 Haircut For Every Rs 100 Insolvency Claims Under IBC: Report

Banks Take Rs 69 Haircut For Every Rs 100 Insolvency Claims Under IBC: Report

Banks Take Rs 69 Haircut For Every Rs 100 Insolvency Claims Under IBC: Report


Banks have taken an average haircut of Rs 69 as losses for every Rs 100 of their claims admitted for the resolution of stressed assets under the Insolvency and Bankruptcy Code (IBC). Creditors have realised Rs 2.35 lakh crore in about 517 IBC cases till June 30, 2022, out of the total claims of Rs 7.67 lakh crore, according to a media report.

The total liquidation value stood at Rs 1.31 lakh crore. The creditors’ total realisation in resolution plans was about 179 per cent of the liquidation value, according to a Business Line report attributing the IBBI data. Haircuts are losses that banks incur on the resolution of stressed assets.

The lower recovery has been attributed to the delay in the insolvency process, due to inadequate training and knowledge of the stakeholders, non-filling of vacancies at the tribunal, and high backlog of cases before the tribunal. The coronavirus pandemic also led to the slowdown in the IBC proceedings.

The Business Line report quoted Siddharth Srivastava, partner (restructuring & insolvency) at Khaitan & Co, as saying, “Lenders ideally will always peg the returns from IBC resolution process to the outstanding amount (as opposed to fair value)… it is therefore advisable that this issue be addressed conclusively by amending the regulations to provide a benchmark for the quantum of haircuts in the resolution plan. Any plan which doesn’t comply with the benchmark should be considered ineligible.”

It also attributed Pritika Kumar, founder of Cornellia Chambers, saying that there has been an increase in bankers accepting huge haircuts in the recent years. “The NCLT Benches, too, have been raising questions in recent cases over lenders approving such big haircuts and are asking for an explanation behind the same. One reason for this could be the inordinate delays in the completion of CIRP proceedings owing to which lenders are accepting big haircuts.”

Meanwhile, a PTI report in its analysis recently said public sector banks have raked in more profits in the three months ended June on the back of a persistent decline in bad loans and the trend may have a positive bearing on their balance sheets in the coming quarters. In the June 2022 quarter, Bank of Maharashtra (BoM) and State Bank of India (SBI) were in the lowest quartile as far as Gross Non Performing Assets (NPAs) and net NPAs were concerned.

Cumulatively, all the 12 public sector banks reported a profit of about Rs 15,306 crore in the three months ended June, registering an annual growth of 9.2 per cent. However, leading public sector lenders — SBI and PNB — posted lower profits in the June quarter. During the April-June period of the previous fiscal, state-owned banks recorded a total profit of Rs 14,013 crore.

The gross NPAs reported by BoM and SBI were 3.74 per cent and 3.91 per cent of their total advances, respectively, in the first quarter of the current fiscal. The net NPAs for these banks came down to 0.88 per cent and 1 per cent respectively, at the end of June.

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