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Bankruptcy doubles to 3,774 in FY20; manufacturing, construction worst-hit

Nevin John     June 22, 2020

The coronavirus outbreak broke the back of manufacturing and construction industries in the last three months. But how did they fare before that? Data from Insolvency and Bankruptcy Board of India (IBBI) for 2019-20 gives a clear picture of the industries' health in India. Insolvency admissions in the last financial year doubled to 3,774 cases. Of this, 1,604 cases have been settled by the tribunals across the country by finding a new buyer, commencing liquidation, or allowing voluntary withdrawals.

In June 2017, Reserve Bank of India (RBI) had first asked the banks to take the 12 big loan defaulters to National Company Law Tribunal (NCLT) and try under Indsolvency and Bankruptcy Code (IBC). The move, which was expected to tame the ballooning non-performing assets (NPAs) on the books of banks and revive the debt-ridden companies bringing in a responsible management, has not achieved the desired results. There are 2,170 cases in which resolution is still pending. Of this, 443 cases have passed the 270 days allowed under IBC for resolution.

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In about three years, 1,527 manufacturing companies have been admitted for insolvency process under IBC after they defaulted on loans. It varies from food and beverages to textiles to chemicals and metals. The economic turbulence has uprooted 757 companies in real estate and renting business. In addition, 408 construction companies, and 378 retail and wholesale trading firms have also shut shop.

There are only a few non-affected sectors, including information technology (IT) and allied services. IBC does not cover the bankruptcy in banking, insurance and financial services (BIFS) sectors. Though gross financial mismanagement is considered as one of the reasons for ending up in bankruptcy, the sectoral troubles have also played a major part in many cases.

In the manufacturing sector, basic metals producers and the textile and leather companies are the most affected - 266 basic metals and 261 textile and leather companies have filed for bankruptcy so far. Nearly 200 food, beverages and tobacco products producers are also in the list of defaulters, besides 154 chemical manufacturers.

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From real estate and renting sector, 757 companies have filed for bankruptcy so far. Of that, the resolution plan approved in 27 cases and liquidation ordered in 148 cases. The real estate companies are the worse hit by the pandemic and will also be the ones to remain crippled for the longest time. At present, the banks are taking control of land parcels and unfinished projects that can be sold along with loans for recovering the dues.

In mid-2017, resolution process was first initiated in 12 big companies, which had a cumulative outstanding claim of Rs 3.45 lakh crore. Of the 12, tribunals found buyers for eight companies. In the major deals, Tata Steel bought Bhushan Steel for Rs 35,571 crore; ArcelorMittal and Nippon bought Essar Steel for Rs 41,018 crore, Reliance Industries bought Alok Industries for Rs 5,052 crore; and Vedanta bought Electrosteel for Rs 5,320 crore. JSW Steel's Rs 19,350 crore offer for Bhushan Power and Steel has been approved by the tribunal, but it is yet to be concluded as it ran into rough weather since Enforcement Directorate (ED) seized the bankrupt company's assets in connection with a money laundering case. NBCC's Rs 23,223 crore offer for Jaypee Infratech has also been approved by the appellate tribunal. NCLT had ordered liquidation of Lanco Infratech and ABG Shipyard. Amtek Auto and Era Infra are still in the resolution process.

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