Don't expect rush in bankruptcy filings: IBBI Chairman

Don't expect rush in bankruptcy filings: IBBI Chairman

AgenciesUpdated: Friday, April 16, 2021, 09:52 AM IST
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Don't expect rush in bankruptcy filings: IBBI Chairman/ Representational Image | Image by Simon Hill from Pixabay

As the suspension on fresh insolvency cases got lifted last month, Insolvency and Bankruptcy Board of India (IBBI) Chairman, MS Sahoo feels that although filings for bankruptcy may increase somewhat, but there would not be a huge jump in cases.

Speaking to IANS, Sahoo noted that there are other provisions for debt resolution too, which would lower the pressure on the Insolvency and Bankruptcy Code (IBC).

"I don't see that there will much rise. It is because people are making more profits then they were making earlier. People have adjusted to the new normal. There are some sectors which have more problems, but generally people are adjusted to the new normal, doing normal business," he said.

Sahoo was of the view that in India, the leverage level is still not very high and businesses continue to get more funding through the equity route.

"And in India also generally, the profit margin is high. Moreover, there are other options for resolution including using the RBI prudential framework, companies act etc. So I don't see a huge rush of bankruptcy filings," he said.

Last year, Sections 7, 9 and 10 of IBC were suspended in the wake of the Covid crisis and the nationwide lockdown, and this further extended till March 24, 2021. There was anticipation that with the resumption of these Sections, the number of bankruptcy filing would surge.

Sahoo was also of the view that the development in the code has been significant and international agencies have appreciated the law and its contribution to the ease of doing business scenario.

Noting people mostly look at how much has been recovered, the IBBI chief said that the law is not primarily for recovery. Even in terms of recovery, it is results in highest recovery among all the options available for banks.

"As compared to liquidation value, the realisation is about 200 per cent and more importantly the ones which come to IBC, they come as last resort, where the banks have mostly written it off."

He said that it is a wrong notion that lenders are taking a 50-60 or 30 per cent haircut.

"In their books, they had written it off, so they were not expecting any money to come in, so the entire money goes to their profit and loss, does not go to their balance sheet actually," Sahoo said.

As per latest data from the IBBI, a total of 4,139 cases were admitted as of last December, out of which 2,422 cases have been closed, including 601 settled or reviewed, 378 withdrawn, 317 approved for resolution plans and liquation for 1,126 companies.

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