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Paradigm Shift in Default Transforms from Bank Problem to Borrower's Concern: IBBI Chairman

The biggest change 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

Mumbai, Sept 16, 2023: The biggest change 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. Earlier the borrower used to default and come and tell the banks I am defaulting and now Rs 1,000 crore whatever amount of loan has been taken is 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 Shri Ravi Mittal, Chairman, Insolvency and Bankruptcy Board of India. 

Addressing the concerns raised by other speakers on delays and low recoveries by IBC, Shri Mittal said, at the 8th National Summit, Insolvency & Bankruptcy Code and Valuation, “IBC is really not a recovery mechanism IBC was thought of as a resolution mechanism and IBC is meant to bring the industry back on track. However, in common parlance, IBC is evaluated based on the recovery mode. 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. Direct benefit of IBC is recovery, but you know the indirect benefit is even bigger and it is called a behavioural change. It is called the change in creditor and borrower relationship.” 

Mittal pointed out that around 20,000 to 25,000 cases have been withdrawn and that was even before admission amounting to around nine lakh crores.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 crore that one has got through resolutions, so IBC has one way or the other helped in bringing about 12 lakh crores back into the banking system. “We are trying to find out or analyse the cause of delay at various levels and we are trying to speed up the processes,” he added. 

Praising the steps taken by IBC Shri Ashwini Kumar Tewari, MD, State Bank of India, said, “In the need to point out all the flaws we forget the good work. From 92 onwards once the account turned NPA we used to just give it to the lawyer and then we didn’t know what happened after that, whether we will recover that money or not. From there to IBC is a huge change. Fantastic job has been done in-terms of outreach, NCLT, IT among others and whole lot of issues has been taken care.” 

Chairman of ASSOCHAM National Council for IBC & Valuation, Shri 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. 

Shri 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 behavioural 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 a top jurisdiction for resolving insolvency in the world, he said. 

Chairman of ASSOCHAM National Council on Stressed Assets and Managing Director of Prudent ARC Ltd, Pradeep Goel said that today Insolvency and Bankruptcy Code (IBC) is the single largest tool for recoveries of dues. In fiscal 2021-22 about 52 per cent recoveries were through the IBC. IBC’s major objective is not only recoveries 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 leads to deterioration of assets and chances of revival are diminished. Therefore, personal guarantors and buying of debts should be allowed through the resolution plans, he said.

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