IBC cases: For every Rs.100 of claims admitted, banks took haircut of Rs.69

Aug 25, 2022

Banks continue to reel under disproportionately large “haircuts” with an average of Rs.69 going towards losses for every Rs.100 of their claims admitted towards resolution of stressed assets under the IBC process. Though the picture looks somewhat better at 17 per cent when the quantum is measured relative to fair value of assets, the real assessment should be measured against admitted claims. There is an urgent need to introduce global standards which mandate that haircuts outside certain benchmarks should lead to failed resolution.

Against this backdrop, Dinesh Pednekar, Partner and Mukesh Chand, Senior Counsel at Economic Laws Practice (ELP) have been quoted by BusinessLine. Dinesh is of the opinion that “While the statistics show that the lenders have taken huge haircuts relative to their admitted claims, such comparisons with respect to the outstanding and recovery amounts may not be logical. Emphasis must be given to ascertain the resolution value vis-à-vis the liquidation value.” Adding to that, Mr. Chand says, “Haircuts need to be looked at in the context of time value of the amount realized. IBC was never conceived or meant as a recovery mechanism, therefore, the basic approach of haircuts is flawed.”

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