Absconding defaulters, legal wrangle, and lack of investor interest are some of the reasons for the low recoveries.

The implementation of the Insolvency and Bankruptcy Code (IBC) in 2017 has reduced the time taken for the resolution of bad loans to 340 days on an average compared to 4.3 years earlier. Yet, a deeper look at the numbers reveals banks’ bid to recover money from defaulters is still getting hampered.

Bank bad loan recoveries

The realisations or recovery rate, which means the amount of money which lenders received in comparison to what they had claimed in the court, has dropped sharply as big-ticket cases have reached a resolution and Covid-19 slump worsens.

Lenders are struggling to recover money in small and mid-sized cases as there is a lack of interest from investors.

The recovery process slowed down during the April-June period, in fact, due to the Covid-19 outbreak, according to IBC data examined by CARE Ratings (pdf)

In the June quarter, the number of new cases admitted in the National Company Law Tribunal declined by 75% year-on-year. The CARE report also states that the recovery rate in the June quarter (when the lockdown was in place) stood at 30.2%, which is way lower than 64% in the previous quarter. “This can be attributed to the nation-wide lockdown coupled with (the) suspension of (the) fresh bankruptcy proceeding for Covid-19 defaults,” CARE said.

At the same time, the economic decline triggered by Covid-19 is leading to a lack of investor interest and deferment of payments, as per ICRA Ratings.

These numbers put together reveal that lenders are still struggling to recover money from fraudsters.

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