MUMBAI: Sale of bad loans to asset reconstruction companies (ARCs) have decelerated, primarily due to increased reference to legal mechanisms including the Insolvency and Bankruptcy Code (IBC). Sale of non-performing assets to ARCs by banks declined from Rs 67,830 crore during 2017-18, to Rs 57,508 crore in 2018-19.
The number of cases and amount involved accelerated in respect of Lok Adalat, Sarfaesi, debt recovery tribunals (DRTs)and under IBC for the year ending 2019. As a percentage of their claims, the average recovery by banks based on the amount filed through the IBC was 42.5 per cent in financial year 2018-19 against 14.5 per cent through the Sarfaesi Act, 3.5 per cent through DRTs and 5.3 per cent through Lok Adalats.
Recovery rates yielded by major resolution mechanisms except Lok Adalats declined in 2018-19. Against the claims admitted by NCLTs, the recovery was at Rs 70,819 through IBC. Recovery through the Sarfaesi route was at Rs 41,876 crore. Recoveries through DRTs and Lok Adalats were Rs 10,575 crore and Rs 2,816 crore, respectively.
The recovery by banks through various legal mechanisms as at end-FY19 stood at Rs 1.26 lakh crore during the year against a total amount of Rs 8.16 lakh crore, representing 14.9 per cent recovery. In 2017-18, there was a recovery of Rs 40,000 crore against an amount of Rs 2.71 lakh crore involved, hovering around 15.5 per cent recovery.
During 2018-19, ARCs issued security receipts of Rs 26,101 crore, out of which banks subscribed to SRs amounting to Rs 5,782 crore, representing 78 per cent upfront cash payment by ARCs to banks in 2018-19, against only 31 per cent in the previous year. The haircut to lenders on ARC transactions reduced from 61 per cent in 2017-18 to 55 per cent in 2018-19.
Source- Economic Times.