94 percent reduction in claim amount in 165 cases of liquidation

Mumbai: Ever since the implementation of the Insolvency and Bankruptcy Code (IBC) in 2016, there has been a 94 percent decline in the amount of claims made by creditors against large business houses that went into liquidation after bankruptcy.

Data from the Insolvency and Bankruptcy Board of India (IBBI) shows that at least 165 borrowers who went into liquidation after receiving loans of over Rs 1,000 crore have seen a decline in assets of 94 per cent.

The lenders had claimed that they were going to collect an amount of Rs 6,94,000 crore from these borrowers. However, the actual value of the assets held by the borrowers was Rs 40,000 crore.

Usually lenders provide loans less than the value of the security before providing the loan and also ensure that the contribution of the promoters remains.

In case no loans are given against security, regular cash flows of borrowers are looked at so that repayments can be assured, said a banker.

Bankers ensure that the value of the business does not fall below the loan amount, but the true value of the respective assets comes to light only after the business houses go into liquidation.

There can be several reasons why the value of the assets falls below the amount of the loans. One is due to the high value shown by the borrower at the time of taking the loan. Huge penalties by other lenders. In such a case, the creditor's exposure increases and the value of the assets depreciates against it.

Once a loan becomes NPA, thereafter, the claim amount increases as the interest is compounded.

Out of 6195 corporate insolvency cases, a total of 1997 cases were pending at the end of December 2022. Out of 4198 cases disposed of, 1901 were taken into liquidation.

Even after seven years of implementation of the IBC, the government is making amendments to tighten the law.