165 IBC liquidation cases saw 94% asset value erosion since 2016: Report

It is surprising as the lenders mostly lend loans keeping in mind the margin and the promotor's contribution

IBC, NPAs, insolvency, bankruptcy, companies
Illustration: Binay Sinha
BS Web Team New Delhi
2 min read Last Updated : Feb 20 2023 | 11:32 AM IST

Businesses that filed for liquidation after getting bankrupt saw a value erosion of 94 per cent of the creditor claims, a report by The Times of India (TOI) said, citing data from the Insolvency and Bankruptcy Board of India (IBBI).

 

The bankruptcy framework was introduced in 2016. Since then, there have been 165 borrowers with claims of over Rs 1,000 crore each. The total claims of these borrowers were worth Rs 6,94,000 crore. However, the on-ground valuation of the assets was just Rs 40,000 crore. 

 

TOI report said that this is surprising as the lenders mostly lend loans keeping in mind the margin and the promotor's contribution. If the loans are not backed by security, they ensure that the business has enough cash flow. The bankers ensure that a business's valuation does not fall below the loan amount. 

 

According to experts, there can be several reasons for the fall in valuation.

 

"Once an account becomes NPA, the valuation of its assets starts deteriorating while claims like interest continue to grow at a compounded rate. The asset coverage ratio nosedives for several reasons, including cases where the assets may have had inflated valuation at the time of sanction or the assets got siphoned off by unscrupulous borrowers when they foresaw losing control of the unit...It will be a good case study to examine the role of various factors in the decline of asset coverage at different intervals to help improve credit monitoring and recovery processes," Hari Hara Mishra, director of UV ARC, told TOI. 

 

The report further added that most cases that go for insolvency now end up in liquidation. Out of 4,198 cases resolved under the IBC since 2016, 1,901 have ended in liquidation. Of these, 1,229 liquidations were because the lenders did not get valid bids. In 600 cases, there was no resolution plan at all. 

 

The Centre is working to improve the insolvency framework in India, the report further added. 

One subscription. Two world-class reads.

Already subscribed? Log in

Subscribe to read the full story →
Subscribe to Business Standard digital and get complimentary access to The New York Times

Quarterly Starter

₹900

3 Months

₹300/Month

SAVE 25%

Smart Essential

₹2,700

1 Year

₹225/Month

Save 46%

Super Saver

₹3,900

2 Years

₹162/Month

Subscribe

Renews automatically, cancel anytime

Here’s what’s included in our digital subscription plans

Access to Exclusive Premium Stories Online

  • Over 30 behind the paywall stories daily, handpicked by our editors for subscribers

Complimentary Access to The New York Times

  • News, Games, Cooking, Audio, Wirecutter & The Athletic

Business Standard Epaper

  • Digital replica of our daily newspaper — with options to read, save, and share

Curated Newsletters

  • Insights on markets, finance, politics, tech, and more delivered to your inbox

Market Analysis & Investment Insights

  • In-depth market analysis & insights with access to The Smart Investor

Archives

  • Repository of articles and publications dating back to 1997

Ad-free Reading

  • Uninterrupted reading experience with no advertisements

Seamless Access Across All Devices

  • Access Business Standard across devices — mobile, tablet, or PC, via web or app

Topics :IBCInsolvency and Bankruptcy CodeIBC resolutionIBC rulesIBC proceedingBankruptcy CodeBankruptcyBS Web Reports

Next Story