The Insolvency and Bankruptcy Code-2016 (IBC) has helped in recovery of significant sums from defaulting corporate debtors, and has contributed to a decline in fresh additions of non-performing assets, besides setting in motion a change in the mindset of the borrowers, a senior government official said here on Friday.
Fresh addition to NPAs and overall NPAs has declined, Secretary to Union Ministry of Corporate Affairs Injeti Srinivas said, citing the Reserve Bank of India reports that showed bad debts coming down from ₹10 lakh crore to ₹8.4 lakh crore since the IBC came into force.
Addressing the inaugural session of a three-day international conference on ‘Insolvency and Bankruptcy Laws: Global Response’ here, he said the IBC was one of the most successful economic legislations in the country. In the pre-IBC regime, it typically used to take four years for resolution of sick companies and entailed 9-10% insolvency cost to manage the assets. The recovery rate then was around 25-26%.
In the two years of IBC, the whole scenario has changed with the recovery rate being about 47-48% in 80-odd cases that have been resolved. The insolvency cost was less than 1%, he said, adding that the IBC and the insolvency proceedings in the NCLT have contributed to a change in the approach of entrepreneurs.
Recalling what a top banker had told him about the change, Mr. Srinivas said as opposed to the past when defaulting entrepreneurs used to send a representative to the bank when the loan turned NPA, they were themselves coming now and pleading with the bankers.
With the IBC, 4,500 cases have been resolved before admission and ₹2.2 lakh crore of defaults settled. “For every one [case] settled in the NCLT framework, nine are being settled outside the NCLT… the fear factor is working with the multiplier of 10,” Mr. Srinivas said.
Chairperson of Insolvency and Bankruptcy Board of India M.S. Sahoo told the conference, being organised by the ICFAI Law School, that the financial muscle, in the wake of IBC, is now restricted and regulated to allow new entrants in business without permitting any abuse of dominance in business competition.
