The All-India Bank Employee Association (AIBEA)—the largest bank employee union in India—on September 1 said banks are forced to take huge losses in the IBC deals citing the example of at least 10 deals where Adani group has acquired various companies.
“We have been demanding laws from recovery. But the government is keen on resolution. In resolution the defaulter borrower escapes, the buyer benefits but in the process huge loss is imposed on the banks. We are opposed to this legal loot of people’s money, ” C H Venkatachalam, general secretary of AIBEA, told Biznewsweek.
The union highlighted around 10 deals involving Adani group companies acquiring bankrupt companies. In these cases, banks have admitted claims of around Rs 62,000 crores compared with the total purchase price is only around Rs16000 crores. That means a haircut of around 75%.
For example, Adani Power acquired Coastal Energen for Rs 3500 crores against the admitted value of Rs 12,300 crores. Also, in the Adani Power-Lanco Amarkantak Power deal, the purchase price is Rs 4101 crore against the admitted claim value of Rs 15, 190 crores. There are several other examples.
IBC was formed in 2016 to address insolvency resolution, which used to take a long time. But, analysts have been pointing to the lack of efficacy of the IBC platform for an effective resolution.
A report from the rating agency CARE said the recovery of loans resolved through the insolvency courts remained low even as the number of cases being admitted was rising. The report implied that the IBC largely remained ineffective in the recovery of funds.
Huge delays in the process is the main reason for huge haircuts for banks as the underlying asset loses value. Banks are forced to accept the deal no matter how bad it is.
Finance Minister Nirmala Sitharaman in her budget address said that the government will develop additional tribunals and integrated technology system for IBC. “Appropriate changes to the IBC to be initiated and additional tribunals to be established. The government will set up an integrated technology system for the IBC for better outcomes,” she said on July 23.
The FM said cases of more than 1,000 companies have been dissolved through the insolvency route, resulting in direct recovery of Rs 3.3 lakh crore. Even after eight years since the launch of the IBC, the recovery of loans resolved through insolvency courts remains low even as the number of cases being admitted is on the rise.