Recoveries under IBC far better than Sarfaesi and DRT, says governor Das
- A parliament panel has suggested that delays in resolution, low recovery rates, and rising liquidation cases indicate the need to review the IBC, arguing that the law has deviated from its aim of offering quick resolution path to stressed firms
MUMBAI: Amid mounting criticism of low recoveries under the Insolvency and Bankruptcy Code (IBC), Reserve Bank of India governor Shaktikanta Das has said that the resolution mechanism is far better than what was seen under the Sarfaesi Act and debt recovery tribunals (DRT).
"The implementation of IBC requires the time taken needs to be reduced and the government has also undertaken some further legislative action to streamline the process...Therefore, so far as the recoveries are concerned under IBC, it is far better than Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act and DRT,” said Das.
Das said total recovery, after haircuts, under the Lok Adalat regime was about 5%; under the DRT framework, it was 6% between 2014-15 and 2019-20.
While under the Sarfaesi framework, the recovery was 20%, under IBC it is 40%.
“Till the onset of the pandemic, the recoveries were 45%. It is only during the pandemic here that recoveries have slightly come down,” said Das.
Mint reported on 4 August that a parliament panel has suggested that delays in resolution, low recovery rates, and rising liquidation cases indicate the need to review the IBC, arguing that the law has deviated from its aim of offering a quick resolution path to stressed companies.
The standing committee report said haircuts taken by lenders are as high as 95%, and more than 71% of the cases have been pending for more than 180 days. These, the report said, point to a deviation from the original objectives of the Code as intended by Parliament.
Recently, the resolution plan for Videocon Group saw a clutch of dissenting creditors and erstwhile promoter Venugopal Dhoot approach an appeals court. They are contesting the approval accorded to a resolution plan submitted by Vedanta group firm Twin Star Technologies. At a December vote, over 95% of lenders backed Twin Star’s ₹2,900 crore plan for 13 Videocon firms, while the rest dissented or abstained. This implied a 95% haircut—the 13 companies owe ₹61,773 crore to financial creditors. State Bank of India (SBI) has the highest voting share of 18.05% in the CoC, followed by IDBI Bank at 16.06% and Union Bank of India at 9.07%.
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First Published:7 Aug 2021, 09:06 AM IST
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