IBC finds lost treasure for banks; other bad loan recovery tools fail to recreate same success

In fiscal 2017-2018, banks filed 33.17 lakh cases with Lok Adalats, and managed to recover only Rs 1,811 crore from disputed amount of Rs 45,728 crore; which is about 4% of the disputed amount.

While Indian Scheduled commercial banks recovered a whopping Rs 70,819 crore of stressed assets in FY 2018-19 under the government’s flagship scheme Insolvency and Bankruptcy Code (IBC), other recovery methods failed to recreate IBC success, according to a report by RBI. The amount recovered in the financial year 2018-19 under IBC also rose and is significantly more than that recovered by banks in FY 2017-18.

Recovery process via other methods didn’t fare well for banks. These methods include recovery via Lok Adalats, Debt Recovery Tribunals (DRT), Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest (SARFAESI) Act. While the number of cases reported before Lok Adalat increased, only Rs 2,816 crore of the total disputed amount of Rs 53,506 crore was recovered in FY19. This amounts to mere 5.3% resolution. In the fiscal 2017-2018, banks filed 33.17 lakh cases with Lok Adalats, and managed to recover only Rs 1,811 crore from disputed amount of Rs 45,728 crore; which is about 4% of the disputed amount.

On the other hand, recovery through DRT route also hit rock bottom for the banks. Out of Rs 3.06 lakh crore disputed amount reported, banks could only recover Rs 10,574 crore. Recoveries via SARFESI act also slipped to 14.5% in FY19 from the recovery of 32.2% of disputed amount in FY18. However, more than double cases were admitted under the SARFESI act as compared to last year.

In the FY19, the total disputed amount stood at Rs 1.66 lakh crore for the cases admitted under NCLT. The same stood at Rs 9,929 crore in FY18. In FY19, the number of cases admitted under IBC were also higher than last fiscal. There were about 1,135 cases filed before NCLT in FY19, which is a jump by 431 cases brought to the NCLT’s notice in FY18.