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Modi govt expects recovery of bad loans worth more than Rs 1 lakh crore via its new bankruptcy code

Following the success of stressed Bhushan Steel’s takeover by TATA steel which saw the banks recovering a whopping Rs 36,400 crore, the Modi government has expressed confidence in bringing back more than Rs 1 lakh crore via its Insolvency and Bankruptcy Code (IBC), Indian Express has reported.

This will be achieved in the form of banks writing back the aforementioned amount, following the successful resolution of the 11 Non-Performing Assets (NPA) cases under the IBC introduced in 2016.

Under TATA’s takeover of a controlling 72.65% stake in Bhushan steel, it was noted that not only was this the first case resolved under the IBC, it also meant that more than 90% of the principal loan amount was recovered which would go towards the banks’ recovery.

The now 11 NPA cases which were referred to by the RBI contain a total of 25% of India’s bad loans are being heard by the National Company Law Tribunal (NCLT). All these 11 cases comprise of the companies which owe the banks more than Rs 5000 crore.

As per a PTI report, these cases are expected to bring in more than Rs 1 lakh crore to reduce the bad loans given by our public sector banks, taking the potential recovery total to more than Rs 1,36,400 lakh crore.

These 11 cases belong to Bhushan Power & Steel, Essar Steel, Jaypee Infratech, Lanco Infratech, Monnet Ispat & Energy, Jyoti Structures, Electrosteel Steels, Amtek Auto, Era Infra Engineering, Alok Industries and ABG Shipyard, who owe the banks about Rs 1.75 lakh crore.

As reported by us, under the IBC, a case must be resolved within 270 days, for which the quasi-judicial body of NCLT was set up. After the resolution of the first list of 12 cases, the RBI has prepared a second such list which contains 28 accounts up for resolution.

Hence going forward, the NCLT is expected to address about 65% of our bad loans between 2018-19 and the present 11 benches of the body may be expanded for a speedier resolution.

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