Sunday, February 28

Zilch: That’s what banks are likely to recover from 354 liquidation cases

MUMBAI: Banks are staring at nil to negligible recovery in ongoing 354 liquidation cases in 2020. Most stressed assets are sold at throw-away prices and are moving for liquidation despite several measures taken by the government and the Reserve Bank of India to resolve the growing stress in the financial system.

In the 2019 September quarter, as many as eight of the nine companies where liquidation process was closed yielded no value to stakeholders.

A large case like Orchid Health Care, with claims of Rs 3,500 crore, was liquidated with no value. Only Kakatiya Engineering Equipment with claim of Rs 50 crore yielded Rs 5.33 crore to stakeholders.

Many companies are staring at liquidation in the absence of investor interest. Delay in resolution is also triggering liquidation. As on September 2019, there have been 1,497 cases under Indian Bankruptcy Code (IBC), liquidation process has commenced in 587 cases.

In respect of 354 ongoing liquidations, claims admitted for liquidation in respect of these cases is Rs 3.55 lakh crore, while the liquidation value is only Rs 15,165 crore, Insolvency and Bankruptcy Board of India data showed. This is just 4% of the claims amount admitted.

As many as 201 cases of these have been under liquidation process for more than a year. These cases are likely to be closed in 2020. Banks are staring at zero realisations in many of these cases, as has been the trend so far.

“The nil or negligible realisations in liquidation cases will have a negative carry for banks in terms of cost of time, manpower and expenses,” said Hari Hara Mishra, director, UV ARC. “While IBC can be the best solution for possible turnaround cases, for cases where a resolution does not look probable, banks may explore other avenues like SARFAESI, DRT or sale to ARCs which may provide cost efficient solution including transparent price discovery mechanism.”

The claims of Rs 3.55 lakh crore admitted under ongoing 354 liquidation cases include dues to financial creditors, workmen and other statutory dues. Realisation of only 4% against these claims is going to affect banks’ overall recovery from distressed assets.

“Many cases going for liquidation is a negative for the banking system,” said Abhishek Dafria, analyst Icra. “Most cases have been defaulting for a long period. There would not be incremental impact if the cases are liquidated.” Dafria said companies under IBC see value erosion. “Banks have to realise whether that is the fair value of assets.” Banks are required to write off the entire debt once the cases go under liquidation .


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