Among the top 100 bank defaulters of 2019, a total of 82 companies, including some large companies run by prominent industrialists, have been referred to and excluded from the National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code (IBC), 2016. , about a third of the companies went into liquidation over the years, suggesting the banks barely repaid the money, according to research. The Indian Express reveals.
After the IBC framework came into being in 2016, the lenders ie banks had a way out. A status update on what happened to these top 100 defaulters shows that out of a total of 82 companies that landed at NCLT, Corporate Insolvency Resolution Process (CIRP) was initiated in 74 cases and 28 companies went into liquidation over several years.
The research further revealed that these 100 companies had a total debt of Rs 8.44 lakh crore in 2019. Of which nearly half or Rs 4.02 lakh crore were declared non-performing assets (NPAs) or bad loans as of March 2019. The total debt of the 28 companies that went for liquidation was Rs 1.23 lakh crore. The average recovery of lenders on liquidity issues is only 3.17 percent.
The outstanding debt data of these 100 companies as on March 31, 2019 has been compiled through their annual reports, audit reports, filings with stock exchanges, annual returns filed with the Registrar of Companies (ROC) and NCLT orders, which run into thousands. Pages for all companies are put together. For the first time, the list of top 100 bank defaulters has been accessed by The Indian Express under the Right to Information Act. The list comes after knocking on the doors of the Reserve Bank of India (RBI) through several RTI applications and appeals over a period of four years from 2019. The matter reached the Central Information Commission (CIC) and after several hearings, the central bank disclosed. Information in November 2023, and that too partially.
In fact, these top 100 defaulters accounted for nearly 50 percent of the total NPAs of all scheduled commercial banks of Rs 9.33 lakh crore as on March 31, 2019.
Of the total outstanding debt of these 100 companies of Rs 8.44 lakh crore, only 15 companies concentrated in three sectors – manufacturing, power and construction – contributed more than 50 per cent (Rs 4.58 lakh crore) of the debt. Of the 100 defaulters, 34 were in the energy business, 32 in manufacturing, 20 in construction or real estate and five in telecom. The remaining nine companies are from other sectors. A closer look at the list of top 100 defaulters shows that only 30 of them contributed more than 30 percent of the total NPAs of FY19 or Rs 2.86 lakh crore.
Bhushan Power & Steel Ltd topped the list with outstanding debt of Rs 41,400 crore as of March 2019. The company was later taken over by JSW Steel of the Jindal Group. Essar Steel – later acquired by ArcelorMittal – is in second place, with Rs. 69,360 crores. Other companies in the top 10 are Videocon Industries, VOVL Limited, Jayaprakash Associates, KSK Mahanadi Power, Reliance Communications, Alok Industries, Prayagraj Power and Jayaprakash Power.
Current status and vertical haircuts
A close study of these 100 companies shows that out of CIRP’s initiative against 74 companies for debt repayment, a resolution plan providing for debt treatment of creditors or banks, was approved by the NCLT in a total of 33 cases. .
A total of 28 companies were referred for liquidation by the NCLT. As many companies went into liquidation, banks got little money back. According to the Insolvency and Bankruptcy Board of India (IBBI), a government regulator responsible for the implementation of the Code,
The average recovery by creditors against their admitted claims in liquidation cases is only 3.17 percent. The analysis further shows that there are a total of 13 cases where CIRP proceedings are ongoing. Besides, NCLT has five more companies, where petitions for initiation of CIRP have been filed against them.
In a total of six cases, including the third largest defaulter Videocon Industries Limited, either the resolution plan was rejected by the NCLT and NCLAT or the CIRP proceedings were closed after a settlement between the parties and withdrawal of the case.
The Indian Express has analyzed a total of 20 Sankalp schemes out of 33 approved schemes available on the IBBI portal. A total of Rs 2.25 lakh crore has been disbursed to financial lenders i.e. banks in these cases, but only Rs 82,961 crore was disbursed under the resolution scheme. Thus, banks took a haircut of Rs 1.42 lakh crore in one-fifth of the top 100 bank defaulter cases. The amount received is only 36.84 percent as compared to accepted claims.
In 10 of these cases, the recovery amount is less than 30 percent. In cases like MCNALLY Bharat Engineering Company Limited and ACIL Limited, the amount received is only 9 per cent and 5.94 per cent respectively. In the case of Reliance Naval and Engineering Limited and GVK Power (Goindwal Sahib) Limited, the amount received is only 16.30 per cent of the accepted claim. Similarly, in Essar Power MP Limited and Diamond Power Infrastructure Limited, only 20 per cent of the claims were accepted.
The highest recovery was in the Jaypee Infratech case, where financial creditors recovered 79 percent of the claims accepted in the successful resolution plan. The top two bank defaulters – Bhushan Power and Steel Ltd and Essar Steel India Ltd – received 41 per cent and 60.70 per cent respectively against their claims in the scheme by financial lenders. The third largest bank defaulter Videocon Industries Limited is still in limbo as the resolution plan approved by the NCLT was set aside by the NCLAT in January 2022 and a fresh resolution plan was ordered. According to IBBI, the average recovery amount against accepted claims for which the resolution plan is approved is 32.30 percent.
The data is based on the analysis of 1,050 companies whose resolution plans have been approved until June 2024.
Less recovery and time consumption
A study published by the Indian Institute of Management (IIM), Ahmedabad in August 2023 shows that for financial lenders, hotels and restaurants and the construction industry showed the highest recovery rates and electricity, gas and water supply the lowest.
“Interestingly, the highest recovery rates are not for asset-heavy industries but rather for asset-light industries with substantial intangible assets. This also highlights the importance of auctions in realizing an entity’s going concern value. Manufacturing is also the lowest in terms of recovery. ,’ the report said. The IIM study is particularly concerning for these 100 defaulting companies as more than 60 percent of these defaulters are from the energy and manufacturing sectors Associates Ltd., KSK Mahanadi Power Company Ltd., Reliance Communications Ltd., Videocon Telecommunications Ltd., Rolta India Ltd., Advantage Overseas Pvt. Ltd. etc. are still pending resolution plans.
While, according to IBBI, the resolution process, on an average, takes 679 days to conclude as against the standard timeline of 330 days, the delay in these top 100 default cases is much higher.
In these top NPA cases it takes an average of 960 days from initiation of insolvency proceedings to approval of resolution plan by NCLT. Similarly, from the initiation of CIRP, it has taken an average of 690 days to order liquidation, while the overall average is 493 days. Delays are often caused by litigation by multiple stakeholders with competing interests, further reducing the value of an already distressed corporate debtor and reducing the recovery value of creditors.
An analysis of 947 resolved cases up to March, 2024 indicated a direct correlation between the length of the resolution process and the recovery rate. According to the Bankruptcy Board, 453 companies took 600 or more days for resolution, while only 26.11 percent recovered. While 0-330 days (140 cases) show 49.22 percent recovery and 330-599 days (354 cases) show 35.98 percent recovery.
The analysis also showed that among the 34 energy sector companies in the list, at least three companies were acquired by Adani Power and in one other case, the resolution plan of the group was approved.
Apart from Adani group companies, JSW Steel acquired Bhushan Power & Steel, ArcelorMittal and Nippon Steel’s joint venture Essar Steel India Limited, GAIL Mangalore Petrochemicals acquired JBF Petrochemicals Limited, Evonith Metals Limited acquired Uttam Galva Metallcy and Uttam Galva Limited. Best Value Steels Limited.