The Reserve Bank of India (RBI) believes that the Insolvency and Bankruptcy Code (IBC) is probably the best mechanism for creditors to recover their dues and said the right way to look at its effectiveness would be to compare the resolution value to the liquidation and not the total loans. RBI, in the latest report on Trends and Progress of Banking, said that the realisation value through IBC was close to 201% of liquidation value.
RBI argued that since significant value destruction may have already happened in stressed assets, a comparison of realised value with admitted claims may not be a reasonable indicator of the effectiveness of the resolution process.
“Rather, the resolution value may be compared with the liquidation value of stressed assets,” the central bank said in its report. “Data indicate that at end- September 2022, in cases where the corporate insolvency resolution processes were initiated by financial creditors, the realisation through the IBC was close to…
