NPA or default no longer only bank’s problem post-IBC: IBBI Chairman

The biggest change the Insolvency and Bankruptcy Board of India (IBBI) has brought in the system is that NPA or a default is no longer a bank problem and it has now become the borrower’s problem, said Ravi Mittal, chairman, Insolvency and Bankruptcy Board of India, while addressing the 8th National Summit on Insolvency and Bankruptcy Code and Valuation, held in Mumbai on 16 September.

“Earlier the borrower used to default and come and tell the banks he is defaulting and the defaulted loan is the bank’s problem. Now, the borrowers are under fear and pressure to repay loans to banks so clearly there is a behavioural change amongst borrowers, said  Ravi Mittal.

Addressing the concerns raised by other stakeholders on delays and low recoveries by IBC, Mittal said: “IBC is not a recovery mechanism. IBC was thought of as a resolution mechanism, and IBC is meant to bring the industry back on track. However, IBC is evaluated based on the recovery amount. The average recovery in the last six to seven years was about 32%, whereas last year it was 180 cases and a recovery of 36%. We are trying to speed up the process and are open to suggestions from stakeholders. The direct benefit of IBC is recovery, but you know the indirect benefit is even bigger, and it is called a behavioral change. It is called the change in creditor-borrower relationship.”

Mittal pointed out that around 20,000 to 25,000 cases of default have been withdrawn, and that was even before admission, amounting to around nine lakh crores.

“So, if you add nine lakh crores to the three lakh crores that one has got through resolutions, IBC has one way or another helped in bringing about 12 lakh crores back into the banking system. “We are trying to find out or analyze the cause of delay at various levels, and we are trying to speed up the processes,” he added.

Praising the steps taken by IBC, Ashwini Kumar Tewari, MD, State Bank of India, said: “In the need to point out all the flaws, we forget the good work. From 1992 onwards, once the account turned into an NPA, we used to just give it to the lawyer, and then we didn’t know what happened after that—whether we would recover that default money or not. From there to IBC is a huge change. Fantastic work has been done in terms of outreach, NCLT, and IT, among others, and a whole lot of issues have been taken care of.”

Chairman of ASSOCHAM National Council for IBC and Valuation, Bahram Vakil, addressing the summit, said that the work done by the Insolvency and Bankruptcy Board of India (IBBI) from day one has been remarkable. It has been very responsive in carrying out the work of dissemination of information and data. The new amendments to the Insolvency and Bankruptcy Code were to happen in the last Parliament session and are expected to be taken up in the winter session of Parliament. Cost-wise, IBBI is very competitive. When compared to global standards, IBC is the lowest-cost jurisdiction.

Vakil, who is also a senior partner at law firm AZB & Partners, added that IBBI has really been a game changer. The real change has been the cultural and behavioral one in the last seven years. Matters are getting settled prior to admission at IBBI, and that number is over 25,000. Under the IBBI, a commendable body of law and precedents is being created. The first three years were very good for the IBC. But a lot needs to be done so that we remain the top jurisdiction for resolving insolvency in the world, he said.

Chairman of the ASSOCHAM National Council on Stressed Assets and Managing Director of Prudent ARC Ltd., Pradeep Goel, said that today the Insolvency and Bankruptcy Code (IBC) is the single largest tool for recovering dues. In fiscal 2021–22, about 52% of recoveries were through the IBC. IBC’s major objective is not only recovery but also resolution, rehabilitation, and revival of businesses. In addition to recoveries, there have also been many revivals of businesses. However, any delays in the orders of IBBI lead to the deterioration of assets, and the chances of revival are diminished. Therefore, personal guarantors and the buying of debts should be allowed through the resolution plans, he said.

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