The recovery ratio for creditors through the Insolvency and Bankruptcy Code (IBC) has fallen to its lowest level ever, highlighting the challenges that lenders face as bidders turn cautious due to an uncertain economic environment even as court approvals have slowed down.

Latest data from the Insolvency and Bankruptcy Board of India (IBBI) shows that out of the admitted claims of Rs 32,861.90 crore resolved in the quarter ended December 2021, creditors recovered just Rs 4406.76 crore or just 13.41%.

The low recovery in the quarter has also pulled down the overall recovery rate since the law came into effect from December 2016. Out of the total admitted claims of Rs 7.56 lakh crore under the IBC until December 2021, the recovery rate is just 33.10% down from 35.89% at the end September 2021.

Bankers said the numbers show the twin impact of court led delays and also decreasing investor appetite for stressed assets.

“IBC is slowly turning into a failure. It has lost its charm,” said a senior public sector bank executive. “The delays have eaten into the law. Right from the time that we file a case the delays start and in some cases continue even after the committee of creditors have approved the resolution. Frankly, the legal delays give the promoters enough time to divert funds and empty the company’s coffers even as banks helplessly watch an asset losing its value,” this executive said.

He pointed out to some cases like Jaiprakash Associates which was filed under IBC way back in September 2018 but is yet to be admitted or real estate company SuperTech which was filed in December 2019 but is still not admitted. Some like Osians Art was filed in March 2019 but admitted only in December 2021 or Wind World Ltd where the resolution process started in February 2018 but is yet to see a completion. Even a high profile case like Jaypee Infra which was directed to the IBC by RBI is yet to see resolution almost five years since it was taken to court. The timeline for admission of cases was 14 days when the law first came into force.

The delays are glaring with 73% of the cases overshooting the 270 day timeline envisaged by the law.

Industry veterans say vacancies in company law benches across states, lack of set parameters and lengthy decision making process at bank level are taking its toll. “The resolution outcome and timeline taken for resolution are discomforting. It is time to fill up vacancies in various benches, streamline processes for timely disposal, greater emphasis on prepackaged resolution and thrust on enforcement of guarantee, for optimal value maximisation of distressed assets,” said Hari Hara Mishra, director, UV ARC Ltd.

Bankers say the law is perfectly workable but implementation has left a lot to be desired.

“The delays are now causing value destruction of these assets. Also receivables for some of these companies will be hard to get because no one can chase a payment which is due from five years ago. As it is the assets which are left are the tough ones to crack with promoters who want to find loopholes and game the system and these delays are making things worst,” said another senior public sector bank executive.

Bankers do not expect any large recoveries from hereon as sectors like steel and power which had attractive assets on the ground are already resolved and all large stressed cases are to be transferred to the National Asset Reconstruction Co Ltd (NARCL).