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 In these rescued cases, 894 have been closed on appeal or review or settled; 793 have been withdrawn; and 611 cases have ended in approval of resolution plans.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.