RBI Chief Calls for IBC Course Correction: Recovery Rate, Time & Haircuts

Mumbai, Jan 11 (PTI) Lenders have recovered 32 per cent of their total claims under the Insolvency and Bankruptcy Code (IBC) but the learnings suggest the need for "some course correction" with respect to the law, RBI Governor Shaktikanta Das said on Thursday.

He said the major criticisms of the IBC are on two fronts -- the time taken for resolution and the extent of haircuts as against the admitted claims.

The IBC, which came into force in 2016, is a key legislation aimed at resolving stressed in a time-bound and market-linked manner.

Addressing a conference on the IBC organised by the Centre for Advanced Financial Research and Learning (Cafral) here, Das said "if we have to take stock of the IBC implementation journey and its impact so far, there are significant positive indications as well as learnings, suggesting a need for some course correction".

In terms of realisation of value, the creditors have realised Rs 3.16 lakh crore out of the admitted claims of Rs 9.92 lakh crore as of September 2023, which works out to a recovery rate of 32 per cent, he said.

Highlighting the positive aspects, he said in terms of the nature of resolution since its inception, 7,058 corporate debtors have been admitted for bankruptcy resolution, of which 5,057 cases have been closed as of September 2023.

Das said 2,001 corporate debtors are under various stages of resolution.

Quoting data from the Insolvency and Bankruptcy Board of India (IBBI), as of September 2023, of the cases that have been closed, about 16 per cent have yielded successful resolution plans, while 19 per cent have been withdrawn under Section 12A of the IBC where largely the debtors agreed for full or partial settlement with creditors.

About 21 per cent have been closed on appeal or review; and in 44 per cent of the cases, liquidation orders have been passed.

However, a fine-combing of the data would indicate that 77 percent of liquidations were inherited from the earlier Board for Industrial and Financial Reconstruction (BIFR) regime or were already defunct units where substantial value erosion had taken place before their admission under the IBC, he said.

A total of 38 per cent of the cases that yielded a successful resolution were earlier with the BIFR and/or were defunct; and if not for the IBC, their fate would have perhaps remained uncertain, the RBI governor said.

The IBBI data suggests that there has been an increase in the number of cases resulting in resolution as a percentage of liquidation orders going up from 21 per cent in FY18 to 45 per cent in FY23, reflecting a steady tilting towards resolution option under the IBC, according to Das.

Even in other segments such as NBFCs, the IBC has been an effective enabler for resolution, he said, referring to Section 227 of the IBC, which was operationalised in November 2019.

The RBI governor added that the credible 'threat of insolvency' ignited by the IBC has strengthened the negotiating powers of the creditors, "in the absence of which it is most likely that those defaults would have lingered for much longer, resulting in value destruction".