IBC emerges as major mode of NPA recovery in 2019-20

Non-performing assets (NPAs) recovered by scheduled commercial banks through the Insolvency and Bankruptcy Code (IBC) channel increased to about 61 per cent of the total amount recovered through various channels in 2019-20 against 56 per cent in 2018-19, according to latest Reserve Bank of India (RBI) data.

IBC, under which recovery is incidental to rescue of companies, remained the dominant mode of recovery, according to RBI’s “Report on Trend and Progress of Banking in India 2019-20.”

In absolute terms, of the total amount of Rs 1,72,565 crore recovered through various channels in 2019-20, IBC route accounted for Rs 1,05,773 crore. In 2018-19, of the total recovered amount of Rs 1,18,647 crore, the recovery via IBC channel was Rs 66,440 crore.

“Going forward, insolvency outcomes will hinge around uncertainties relating to Covid-19.

“The government has suspended any fresh initiation of insolvency proceedings in respect of defaults arising during one year commencing March 25, 2020 to shield companies impacted by Covid-19,” RBI said.

SARFAESI channel

The report observed that the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002, (SARFAESI) channel also emerged as a major mode of recovery in terms of the amount recovered as well as the recovery rate, the report said.

Under SARFAESI, Rs 52,563 crore was recovered in 2019-20 against Rs 38,905 crore in 2018-19.

With the applicability of the SARFAESI Act extended to co-operative banks, recovery through this channel is expected to gain further traction, the report said.

Apart from recovery through various resolution mechanisms, banks also clean up balance sheets through sale of NPAs to assets reconstruction companies (ARCs) for a quick exit.

During 2019-20, asset sales by SCBs to ARCs declined which could probably be due to SCBs opting for other resolution channels such as IBC and SARFAESI, RBI said.

The acquisition cost of ARCs as a proportion to the book value of assets declined suggesting lower realisable value of the assets, it added