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IBC recoveries are far superior to the recoveries under SARFAESI & DRT Laws

The Reserve Bank of India (RBI) Governor Shaktikanta Das stated that recovery under the IBC procedure was "much more" than through alternative Debt Resolution settlement processes. His remarks follow accusations that banks were taking significant haircuts in major Insolvency and Bankruptcy Code (IBC) cases.

He has remarked that the resolution system is significantly superior to what was witnessed under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) and Debts Recovery Tribunals (DRTs), despite rising criticism of low recoveries under the Insolvency and Bankruptcy Code (IBC).

The time it takes to implement the IBC must be cut in half, and the government has taken further legislative steps to speed up the process. As a result, the IBC is considerably superior to the SARFAESI Act and DRT in terms of recoveries. According to Das, overall recovery after haircuts was roughly 5% under the Lok Adalat system, while it was 6% under the DRT framework between 2014-15 and 2019-20. While recovery was 20% under the SARFAESI structure, it is 40% under the IBC framework. He said that the government has also undertaken some legislative action to streamline the process and rationalize the system.

According to a Parliament Group, delays in resolution, low recovery rates, and an increase in liquidation cases show that the IBC needs to be reviewed, stating that the law has strayed from its goal of providing a speedy resolution path to stressed enterprises. According to the standing committee report, lenders are taking as much as 95% haircuts, and more than 71% of the cases have been languishing for more than 180 days. These, according to the analysis, indicate a departure from the Code's initial legislative goals. A group of opposing creditors, including former founder Venugopal Dhoot, recently filed an appeal against Videocon Group's resolution proposal. They are opposing the approval of a resolution plan proposed by Twin Star Technologies, a Vedanta group company. Over 95% of lenders endorsed Twin Star's 2,900 crore plan for 13 Videocon enterprises in a December ballot, while the rest dissented or abstained. The 13 companies owe financial debtors a total of 61,773 crore, implying a 95 percent haircut. Committee of Creditors (CoC) is dominated by the State Bank of India (SBI), which has the highest voting share (18.05%), followed by IDBI Bank (16.06%), and Union Bank of India (9.57%).


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