Financial Haircuts Under IBC Process and Government Measures

The Ministry of Corporate Affairs provided critical updates on the Insolvency and Bankruptcy Code (IBC) in response to an unstarred question in the Lok Sabha. The response highlighted significant financial haircuts, creditor recoveries, unresolved cases, and steps to strengthen the IBC framework.

IBC and Financial Haircuts: An Overview

The Insolvency and Bankruptcy Code, 2016 (IBC) aims to resolve corporate insolvency efficiently. However, it has faced scrutiny over the financial haircuts taken by creditors, particularly banks.

Key Figures on Creditor Recoveries

Since the IBC’s inception, 1,068 cases have been resolved, leading to a recovery of approximately ₹3.55 lakh crore by creditors up to September 2024. While these recoveries are market-driven and dependent on asset quality, concerns persist over substantial financial haircuts.

Year-wise Data on Resolutions

The table below provides year-wise data on cases resolved and realizable amounts by financial creditors (FCs):

The data reflects varying recovery rates, influenced by the market value of distressed assets and the structure of resolutions.

Delays in CIRP Proceedings

The Corporate Insolvency Resolution Process (CIRP) is intended to conclude within 180 days, extendable to 270 days under certain circumstances. However, of the 1,963 ongoing CIRP cases, 1,388 have exceeded the 270-day limit.

Delays in resolution remain a significant challenge, raising concerns about value erosion in distressed assets and the overall efficacy of the IBC process.

Steps Taken to Strengthen IBC Implementation

The government has undertaken multiple initiatives to address concerns and improve the IBC framework:

1. Amendments to IBC: Six amendments to the Code have been made since its inception. These amendments aim to enhance operational efficiency, ensure creditor protection, and address emerging challenges.
2. Regulatory Updates: The Insolvency and Bankruptcy Board of India (IBBI), the IBC regulator, has introduced over 100 amendments to regulations. These include procedural refinements and measures to prevent misuse of the resolution process.
3. Capacity Building: Efforts to strengthen the ecosystem include training insolvency professionals and enhancing the capacity of adjudicating authorities.
4. Focus on Accountability: Measures are in place to minimize misuse of the IBC process, ensuring that it serves its intended purpose of timely and equitable resolution of insolvencies.

Concerns Over Financial Haircuts

While recoveries under IBC have brought some relief to creditors, large corporations often secure significant financial concessions during the resolution process. These haircuts, although market-driven, sometimes lead to concerns about losses incurred by banks, particularly nationalized banks.

The government clarified that detailed data on concessions provided to top companies and specific financial haircuts by nationalized banks are not maintained centrally. However, the issue has drawn attention due to its impact on the banking sector and fiscal health.

Key Achievements and Ongoing Challenges

The IBC has played a pivotal role in resolving corporate distress and rehabilitating companies through ownership changes. However, persistent delays in CIRP proceedings and substantial financial haircuts highlight areas requiring improvement.

• Recovered Claims: Creditors have recovered ₹3.55 lakh crore since IBC’s inception, but recovery rates vary significantly.
• Rehabilitated Companies: Several companies have resumed operations post-resolution, contributing to economic stability.

GOVERNMENT OF INDIA
MINISTRY OF CORPORATE AFFAIRS
LOK SABHA

UNSTARRED QUESTION NO. 202

ANSWERED ON MONDAY, NOVEMBER 25, 2024/ AGRAHAYANA 4, 1946 (SAKA)

SUBSTANTIAL FINANCIAL HAIRCUTS UNDER IBC PROCESS

QUESTION

202. SHRI MANISH TEWARI:

Will the Minister of CORPORATE AFFAIRS be pleased to state:

(a) whether large corporations have received substantial financial haircuts under the IBC process, leading to significant banking sector losses and details of the top 100 companies with corresponding concessions during the last five years;

(b) the case-wise details of financial haircuts taken by nationalised banks under IBC during the last five years;

(c) the total creditor claims resolved and companies rehabilitated through ownership changes since the inception of IBC, year-wise;

(d) the details of Corporate Insolvency Resolution Processes under IBC that have crossed the time limit of 180 days extendable upto 270 days; and

(e) the steps taken by the Government to ensure the proper implementation of the provisions of the IBC, preventing its misuse?

ANSWER

MINISTER OF STATE IN THE MINISTRY OF CORPORATE AFFAIRS AND MINISTER OF STATE IN

THE MINISTRY OF ROAD TRANSPORT AND HIGHWAYS

[HARSH MALHOTRA]

(a) & (b): Realization under IBC process is market driven and is inter-alia dependent on quality of assets at the time of its resolution. Data related to realization by nationalised banks under the IBC process are not maintained by the Government. However, a total of 1068 cases have been resolved under the Insolvency and Bankruptcy Code, 2016 (IBC) leading to a recovery of about Rs. 3.55 lakh crore to the creditors since inception of IBC till September 2024.

(c): Year-wise details of resolved cases and realizable value by the Financial Creditors (FC) is provided in the Table below:

(d): A total of 1963 CIRP cases are ongoing, out of which 1388 cases have exceeded the time limit of 270 days.

(e): To strengthen the process of Insolvency Resolution and to ensure proper implementation of the provisions of IBC, the Government has made six Amendments to the Insolvency and Bankruptcy Code, 2016. Further, IBBI, the Regulator, has made more than 100 amendments in regulations since inception of IBC.