IBC and Reduction in Gross NPAs of Banks

The biggest problem of the Indian Banking System is Non-performing Asset (NPA). The report of the Crisil has stated that the gross NPA is estimated to have declined to 10 per cent in end-March 2019 from 11.5 per cent a year before as recoveries through the Insolvency and Bankruptcy Code (IBC) helped banks recover bad loans.

Findings of the Crisil Report

• Even though the average time taken for resolution under IBC is higher than what is set out in the law, IBC is yielding better recoveries in lesser time when compared with earlier methods of recovery.
• There were 1,143 cases outstanding under the IBC of which resolution in 32% of the cases was pending for more than 270 days.
• Lack of appropriate bids to take over companies, differences among the lenders, legal challenges posed by existing promoters and operational creditors are among the reasons resulting in delay.
• The recovery rate for the 94 cases resolved through IBC by fiscal 2019 is 43 per cent, compared with 26.5 per cent through earlier mechanisms.

Crisil has stated that IBC has improved credit discipline and brought in a sense of urgency and seriousness among defaulting borrowers because losing their asset is very much a possibility if the resolution process fails.