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It’s like smashing the barrel of the State Bank of India (SBI), the country’s largest bank, when it comes to liquidating default companies under the Bankruptcy and Bankruptcy Act (IBC) five years ago.
State banks were able to get just 5% of their loan balance. According to sources, the book value of unpaid loans in such liquidation cases has been close to Rs 40,000 since the start of the IBC.
SBI loans locked in a liquidation case may not be large in terms of banks’ total down payments in excess of 25 rupees, but are less feasible in the credit underwriting process, public funding oversight, and There is a problem with the value of the collateral.
The low realization trend was uniform in the banking industry, which is dominated by public sector banks. Liquidation of a default company is the last option. This happens if the defaulting company does not have a bid to take over, or if the maximum resolution period of 330 days under the Bankruptcy Act has expired.
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Under the new code, bankruptcy experts must declare liquidation value to financial creditors by appointing two independent valuation firms. This will be kept secret and will only be disclosed to the Creditors Commission (CoC), which makes the final call for restructuring and resolution of the company.
Sources attribute the lack of realization to excessive leverage or unsustainable debt borne by the company, fraud and misappropriation of funds, inadequate collateral, and overvaluation of assets on the books. .. “Comparison of liquidation value to sum of creditor claims is not the correct benchmark for a bank’s actual realization. Debts are often exaggerated with claims, interests, and penalties,” says bankers. ..
Many of these default companies are mid-sized companies that span manufacturing, real estate, construction, hotels, electricity and more. For many clearings, there is little realization compared to the accepted claims of SBI and other lenders.
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For example, Kolkata-based mobile and tablet dealer Gee Pee Infotel Pvt Ltd has granted more than Rs 21 billion in claims, but nothing has recovered to its balance sheet. Similarly, Delhi-based cable wire maker Shreeom Wires has allowed more than 10 billion rupees and generated 200 million rupees, or 2 percent of the total bill.
IBC’s performance over the past five years shows that nearly half of the proceedings initiated by financial creditors have led to liquidation. However, the resolution was made in one-fifth of the cases, and the remaining cases included cases of withdrawal and appeal.
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