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Our Bureau Rating agency ICRA said on Wednesday it expects financial creditors to realise more than ₹80,000 crore in FY20 from the IBC process, against the ₹66,000 crore realised in FY19.
The optimism stems from the expected conclusion of the Corporate Insolvency Resolution Processes (CIRPs) of two large accounts — Essar Steel and Bhushan Steel and Power Ltd. Both these accounts are part of the RBI’s list of 12 large defaulting companies announced in June 2017.
Abhishek Dafria, Vice President and Co-Head, Corporate Ratings, ICRA, said: “The successful completion of the CIRP for these two accounts will bring closure to eight companies from the RBI’s list and could help strengthen confidence in the IBC, despite the significant delays seen in the process with most of the CIRPs lasting more than 500 days. However, despite the hurdles being faced by the IBC, we expect the number of cases being admitted to the National Company Law Tribunal (NCLT) to continue to increase, especially from the operational creditors who are responsible for 50 per cent of all cases admitted by the NCLT.”
ICRA has highlighted that CIRP under the IBC has been hampered over the past two years by the over-burdened NCLT Benches, innumerable litigations, defiant promoters and failing sectors.
Even then, the process has chugged on, albeit at a slower pace than envisioned. As of March 31, 2019, 715 cases of defaulting corporate debtors had been closed under the IBC. Of these, a significant portion of corporate debtors (378 cases) were ordered into liquidation, while only 92 CIRPs yielded a resolution plan where the companies continue to operate as going concerns.
Last month, the Supreme Court cancelled the February 12, 2018 circular of the RBI, which had directed banks to recognise one-day defaults by large corporates and refer the large defaulting entities (classified as those with loans in excess of ₹2,000 crore) to the NCLT if a resolution plan was not in place 180 days after the default.
February 12 circular
The RBI’s circular would have channelled the resolution process of the defaulting corporate debtors through the framework set by the IBC and encouraged the creditors to approach the NCLT at an early stage of default. The Supreme Court decision is a blow to the IBC and it is important for the RBI to find a new mechanism to ensure the resolution of stressed assets happens in a disciplined manner, said ICRA.
The NCLT Benches continue to remain heavily burdened as the number of cases being admitted continues to increase quarter-on-quarter with the highest quarterly admissions of 359 cases reported in Q4 FY19. As the CIRP timelines continue to get stretched, the number of cases yet to be resolved is only increasing.
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