One of the biggest economic reforms in the country over the last decade has been the introduction of the new Insolvency and Bankruptcy Code (IBC Code) in May 2016. It brought in a system for a time-bound resolution of insolvency and bankruptcy cases in India by consolidating various fragmented laws.
The code set the right framework for the financial institutions to clean up their books once and for all and sought to create the best-possible scenario for keeping a distressed entity alive while also maximizing the value of the underlying assets to benefit all stakeholders. Several big ‘non-performing assets’ (NPAs) or bad loans of banks have gone through the drill and what would have been an impossible task a decade back, has seen their resolution.
If we look at the data, a total of 6199 cases have commenced by December 31, 2022, of which around two-thirds have been closed. Of these closed cases, the corporate debtor was rescued in 2298 cases, or a little over half of the cases. In these rescued cases, 894 have been closed on appeal or review or settled; 793 have been withdrawn; and 611 cases have ended in approval of resolution plans. On the flip side, 1901 have ended in orders for liquidation.
But, in many cases, the creditors have received a fraction of the sum owed to them.
The process has been less than perfect and that has kept many specialised private equity funds dedicated to stressed assets out of the picture, despite the huge opportunity at play.
In the recent past group resolutions became a hot topic to improve the efficacy of the IBC by clubbing various assets under a corporate group. In January, the Ministry of Company Affairs (MCA) floated a consultation paper on the changes being considered for the IBC and specifically factors in domestic group insolvency. RBI also permitted assets reconstruction companies (ARCs) to act as resolution applicant, subject to certain conditions. Various other measures have been introduced to strengthen transparency and improve the corporate governance standards in ARCs.
That said, IBC is still a relatively new legislation and will need to evolve further to get fine-tuned and make it a win-win proposition for various stakeholders in the ecosystem- the owners, workers and creditors of the stressed asset; ARCs; and specialised stressed asset private equity funds.
To take stock of the seven years of IBC, creation and role of NARCL, non-performing loans (NPAs) in the system and to discuss the way forward, VCCircle is organising the next edition of its Stressed Assets Summit.
When the IBC was set in motion, the big ticket cases with liabilities running into several billions of dollars were under the spotlight. Many of those cases have seen a closure with a new buyer or otherwise. If we look at the current stock of NPAs in the financial system, the opportunity has shifted large corporate cases to retail and SMEs. How are the various stakeholders looking at the emerging cases?
International strategic buyers have been active in snapping distressed assets in the country but the same cannot be said about attracting financial investors. Various specialised private equity funds had inked local partnerships to enter the field, but most have been a non-starter. What are the factors holding up PE funds from becoming a string force?
The RBI amended the norms related to ARCs last year, in particular dealing with corporate governance, to act as resolution applicant, minimum net owned funds, deployment of surplus funds, transfer of stressed loans, settlement of dues and more. How does the industry look at the new regulatory regime?
National Asset Reconstruction Company Ltd or NARCL was created two years ago to act as a ‘bad bank’ to aggregate and consolidate stressed assets for their subsequent resolution. But NARCL has come under criticism to step into another shoes, of managing the stressed assets, which requires a different skill set. How do market participants NARCL in the whole game and are there certain reins that need to be pulled?
Mr. Amit Kansal is the Chief Investment Officer of Aditya Birla Stressed Asset AMC Pvt Ltd which runs a Category II AIF focusing on special situations and distress opportunities. At Aditya Birla, he has been involved in some of the most marquee transactions including the largest OTS of its kind for a 1350 MW Thermal Power plant. With a total experience of more than 18 years, he has now been with the Aditya Birla Group for more than a decade and spearheaded the group’s entry into this business.
Prior to this role, he as one of the founding members of team, led the Project & Structured Finance vertical for North & East for Aditya Birla Finance and set up an immensely successful franchise in that business. His role spanned project linked lending, structured debt and corporate finance solutions to large and mid-market corporate houses. He has covered infrastructure, core, hospitality and real estate sectors extensively apart from manufacturing and select sunrise sectors. Previously, he has worked at Srei Infrastructure, ICICI Bank and Ernst & Young.
He is a commerce graduate from Shri Ram College of Commerce and a Rank Holder Chartered Account.
Sanjay has over 25 years of diverse post qualification experience in the area of Finance having worked in manufacturing industry, travel services and banking and financial services. The last 12 of this has been with Phoenix ARC Pvt. Ltd, a leading ARC in India, initially as Chief Financial Officer, and currently as Chief Executive Officer.
Sanjay was a part of the initial team of Phoenix and has witnessed and influenced the changes the industry has gone through in the past decade. He has been actively involved in the entire gamut of distressed assets business; restructuring of distressed companies, resolution of NPAs through negotiations / legal means and also in acquiring portfolios and single assets from various banks and Financial Institutions all over India.
Sanjay is a commerce graduate and a Chartered Accountant. He is also a Company Secretary and a Cost Accountant.
VCC Events opens up the avenues for participation. Join hands to be a part of India’s largest gathering of alternative investments leaders, industry stakeholders and Asia’s influential limited partners, general partners and marquee advisors. Your chance to actively participate and augment yourself as thought leaders.
Drop us a line and we will call you.
