Banks take Rs 69 Haircut for every Rs 100 insolvency claims under IBC: Report


The banks took an average haircut of Rs 69 as losses for every Rs 100 of their claims admitted for resolution of stressed assets under the Insolvency and Bankruptcy Code (IBC). Creditors have realized Rs 2.35 lakh crore in about 517 IBC cases till June 30, 2022, out of the total claims of Rs 7.67 lakh crore, according to a media report.

The total liquidation value stood at Rs 1.31 lakh crore. Total creditor realization in resolution plans was about 179% of liquidation value, according to a Business Line report attributing IBBI data. Haircuts are the losses incurred by banks when resolving stressed assets.

The lower recovery was attributed to the delay in the insolvency process, due to inadequate training and knowledge of stakeholders, unfilled court vacancies and the large backlog of cases pending. the tribunal. The coronavirus pandemic has also caused the IBC procedure to slow down.

The Business Line report quotes Siddharth Srivastava, Partner (Restructuring and Insolvency) at Khaitan & Co, as saying: “Ideally, lenders will always peg returns from the IBC resolution process to the amount outstanding (as opposed to fair value)… it is therefore advised that this issue be addressed conclusively by amending the regulations to provide a reference for the quantum of haircuts in the resolution plan. Any plan that fails to meet the benchmarks should be considered ineligible. »

He also credited Pritika Kumar, founder of Cornellia Chambers, saying there has been an increase in bankers agreeing to huge haircuts in recent years. “The NCLT benches have also raised questions in recent cases about lenders approving such major haircuts and are asking for an explanation behind it. One of the reasons for this could be excessive delays in completing CIRP procedures due to which lenders accept large discounts.

Meanwhile, a PTI report in its analysis recently said that public sector banks raked in more profits in the three months to June on the back of a continued decline in bad loans and the trend may have a positive impact on their balance sheets in the coming quarters. . During the June quarter of 2022, Bank of Maharashtra (BoM) and State Bank of India (SBI) were in the lowest quartile in terms of gross non-performing assets (NPAs) and net NPAs.

Cumulatively, the 12 public sector banks reported a profit of around Rs 15,306 crore in the three months to June, registering an annual growth of 9.2%. However, major public sector lenders – SBI and PNB – posted weaker profits in the June quarter. During the April-June period of the previous financial year, state-owned banks recorded a total profit of Rs 14,013 crore.

Gross NPAs reported by BoM and SBI were 3.74% and 3.91% respectively of their total advances in the first quarter of the current fiscal year. The net NPAs of these banks fell to 0.88% and 1% respectively, at the end of June.

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