The inordinate delays beyond the 270-day deadline under the Insolvency and Bankruptcy Code (IBC) have cost the lenders to the first 'dirty list' of 12 large defaulters a whopping Rs 4,000 crore in interest income foregone, according to an Icra report.
The RBI had mandated these dozen accounts as the first ones to be resolved under the IBC. However, these cases have faced legal challenges right from the start, at every stage, resulting in delays in resolutions.
"The lenders for the initial 12 companies in the Reserve Bank's list of June 2017 are estimated to have lost out about Rs 4,000 crore in additional income due to the delays in the resolution process beyond the 270-day period," Abhishek Dafria, vice-president and co-head for corporate ratings, Icra, said in the report released Monday.
He added that only four cases have been resolved so far and others have crossed 450 days since being admitted by the National Company Law Tribunal (NCLT).
After the bankruptcy laws were passed in May 2016, the number of pending corporate insolvency case under the IBC rose to 816 as of the September quarter, from 723 in the June quarter, according to the Icra report.
There are over 2,100 companies in the NCLT awaiting resolution and according to media reports, banks have recovered over Rs 49,780 crore, or almost 56 per cent of their claims, through the process till mid-August from 32 companies, including Bhushan Steel, which was taken over by Tata Steel for Rs 35,200 crore for a total claim of over Rs 50,000 crore.
Dafria said reduction in the timelines for completion of the resolution process should be of utmost priority to strengthen the IBC process.
According to him, the number of corporate debtors admitted by the NCLT for resolution is growing steadily each quarter. The number increased to 816 as of September-end, from 723 as of June-end, despite the quarter having the highest closure of cases seen so far at 123.
Of the 816 ongoing cases, about 30 per cent have already exceeded the 270-day timeline, which was supposed to be the maximum timeframe allowed for the resolution process to be completed as per the IBC, while another 20 per cent have crossed the 180-day timeline.
Noting that the recent government decision to empower the Registrar of Companies to impose penalties for certain violations of the Companies Act, thus removing the need to go to NCLT, he said another way to speed up the resolution is to lower the minimum threshold of Rs 1 lakh in dues to approach the NCLT.
The average duration from the date of admission to the date of approval of the resolution plan to move the company to liquidation by NCLT has been about 260 days for the cases completed so far, which could be shortened.
To complete the resolution process within the timeline, he said there is a need to increase the number of NCLT benches, which still remains 11 since the IBC was introduced in December 2016, whereas the number of cases being referred to the NCLT has been gaining momentum and crossed over 2,100.
Another area of concern is the proportion of corporate debtors entering into liquidation. As of September 30, as many as 212 cases were resolved through liquidation, compared with only 52 cases where a resolution plan was approved.
Some of these entities were already non-operational when reported to the NCLT and the delays in the process only further deteriorated the asset value.
For about 60 accounts, the entire resolution process after admission by the NCLT took over 300 days, underlining the need for hastening the pace of resolution process, the report said.
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