See discussions, stats, and author profiles for this publication at: https://www.researchgate.

net/publication/335658219

A Study To Analyze Impact Of Insolvency And Bankruptcy Code 2016 On NPA’s

Of Commercial Banks With Reference To Iron And Steel Sector

Conference Paper · January 2019

DOI: 10.4108/eai.18-12-2018.2286382

CITATIONS READS

0 6,962

4 authors, including:

Arti Chandani Rajiv Divekar

Symbiosis International University Symbiosis Institute of Management Studies
43 PUBLICATIONS 188 CITATIONS 26 PUBLICATIONS 71 CITATIONS

SEE PROFILE SEE PROFILE

Mita Mehta
Symbiosis Institute of Telecom Management, Symbiosis International University
35 PUBLICATIONS 141 CITATIONS

SEE PROFILE

Some of the authors of this publication are also working on these related projects:

Women Participation in Automobile Industry: Challenges & Road Ahead View project

Performance View project

All content following this page was uploaded by Arti Chandani on 02 October 2019.

The user has requested enhancement of the downloaded file.

 A Study To Analyze Impact Of Insolvency And
Bankruptcy Code 2016 On NPA’s Of Commercial
Banks With Reference To Iron And Steel Sector

Arti Chandani1, Rajiv Divekar2, Abdus Salam3, Mita Mehta4

{ [email protected] 1, [email protected] 2, [email protected] 3,

[email protected] 4 }

Symbiosis Institute of Management Studies, Symbiosis International (Deemed University), Pune,

MH, India1,2,3,4

Abstract. Indian banking sector is going through a tough phase where the GNPA (gross
Non-performing assets) are all time high and there seem to be no respite in this coming
quarter, at least. An asset is classified as NPA (Non-Performing Assets) which ceases to
generate income for a bank. The gross Non-performing asset ratio stood at 11.5% in March,
2018 and this could reach to 12.2% by March 2019 (RBI financial stability report). There
seems to be some respite on this increase where GNPA declines from 11.5% in March
2018 to 10.8% in September, 2018 (RBI financial stability report). India has seen various
debt resolution mechanism namely BIFR (Board for Industrial and Financial
Reconstruction), CDR (Corporate debt restructuring), SARFAESI (Securitization and
reconstruction of financial assets and Enforcement of Securities Interest) Act, 2002 to IBC
(Insolvency and Bankruptcy Code) in 2016. Insolvency and bankruptcy code (IBC) 2016
was enacted in India in May 2016 with the intent of providing a solution which is efficient
and time bound. The code has a time frame of 180 day and extension of 90 days which
makes a total of 270 days for a company to “resolve or liquidate”. Immediately after
passing resolution of IBC in Parliament in May, 2016, NCLT (National Company Law
Tribunal) was constituted on 1st June, 2016. It started receiving cases of insolvency and
bankruptcy from end of 2016 and presently NCLT has 11 benches through which it
operates. IBC and NCLT operate under IBBI (Insolvency and Bankruptcy board of India)
which was established on 1st of October, 2016. IBBI regulates and supervises
professional, agencies, and entities related to insolvency along with information utilities.
IBBI has also been entrusted to enforce rules related to corporate insolvency resolution,
corporate liquidation, individual bankruptcy and individual insolvency resolution. IBC has
been instrumental, so far, in bringing a much needed change in the credit discipline of the
borrowers. It is expected that given the time-bound resolution, it will help banks to recover
its loan faster along with controlling the losses which occur due to passage of time. The
present study focuses on the loans and advances extended to Iron and Steel companies in
India and performance of these loan over a last decade. Iron and steel sector contributes to
24% of the GNPA in basic metal and metal product category as on January, 2018. Due to
mounting pressure on the service of the loans for Iron and steel industry, the growth of
bank credit to iron and steel sector fell to 2.5% in 2017, which is all time low. The gross
bank credit to Iron and Steel sector stood at Rs. 2,908 billion as of November, 2018. The
total default of Rs. 570.01 billion has been admitted under IBC 2016 as on December,
2018. The study focuses on the trends of bank credit to this sector along with recovery and
default in Iron and steel sector. The total of Rs. 1,288 billion defaults were with IBC 2016
and around 44% of the default is coming from Iron and Steel sector. The study will focus
on few cases of the companies which have been declared as insolvent such as Monnet

SIMSARC 2018, December 18-19, Pune, India

Copyright © 2019 EAI
DOI 10.4108/eai.18-12-2018.2286382
 Ispat, Electrosteel to name a few. The study is aimed to understand the major reasons of
default for Iron and steel sector.

Keywords: Insolvency and Bankruptcy Code, 2016, Non-performing assets, Iron and
steel sector, Liquidation, National Company Law Tribunal

1. INTRODUCTION

1.1 Banking System

Banking sector plays a very significant role in the growth and development of nation and it is
considered as the backbone of any industry. The financial sector reforms as led by Shree M.
Narasimhan Committee in 1991, the banking system of India has undergone significant
transformation with a vision and mission to boost the banking sector and its operations in the
economy.
The Indian Banking System comprises of Scheduled and Non- Scheduled banks. Schedules
banks are included under the 2nd Schedule of Reserve Bank of India, Act 1934, where it is
further classified into nationalized banks; State Bank of India and its associates; Regional Rural
Banks (RRBs); foreign banks; and other Indian private sector banks. The term commercial
banks refer to both scheduled and non-scheduled commercial banks regulated under the Banking
Regulation Act, 1949.
1.2 Definition of Banking

As per Section 5(b) of the Banking Regulation Act, 1949, "banking" means the accepting, for
the purpose of lending or investment, of deposits of money from the public, repayable on
demand or otherwise, and withdrawable by cheque, draft, order or otherwise. The main
functions of banks are to accept deposits from the public and lending the money for the purpose
of investment or loan.
1.3 Non- Performing Asset
The concern of NPA for any country is very deep and global. But for the developing countries
like India, the magnitude of this concern is undoubtedly very high. The economic reforms led
by the Indian government to match the speed of global economic challenge cannot be achieved
without the complete and strategic overhaul of Indian banking and financial sector. The problem
of NPAs is continuously growing which is threating banks existence, shrinking their
profitability and affecting the economy in general. Non-performing assets is termed as the loan
or lease that does not meet the stated principal amount and the interest amount payments. NPA
is further classified into commercial loans which are overdue for more than 90 days, and
consumer loans which are due for more than 180 days.
1.4 Definitions of NPA
An asset is termed as non-performing asset when it stops producing income and profit of the
bank and this can happen due to leased assets or for a loan or advance extended by banks. In
case of a loan or advance when the interest or installment is overdue for more than 90 days, it
is termed as NPA.
The NPAs of the bank can be classified into following categories:
1. Gross NPA: It is the amount of all the NPAs which are shown on a given date. Gross
NPA includes all the assets which could be sub-standard, doubtful and loss assets.
2. Net NPA: It is the amount of NPAs for which bank has provided provisions for it. It is
the real burden of any bank. The difference between Gross NPA and Net NPA is on
the account of the provisions made by the bank.
1.5 Overview of Iron & Steel sector

Steel plays a very important role in the growth of developing countries like India. Being a core
sector, steel is important to the country’s economic security as it is extensively used in a variety
of areas such as social and economic infrastructure, defense, automobiles etc. Total crude steel
production in India has elevated at a CAGR of 5.43 per cent during FY12–18, with country’s
output reaching 103.13 million tonnes per annum (MTPA) in FY18. The country is the third
largest crude steel producer in 2017, as both public and private sector players’ escalated steel
production in view of rising demand. The capacity has increased to 137.98 million tonnes (MT)
in 2017-18 while in the coming ten years the figure is expected to appreciate to 300 MT of steel.
In FY18, India produced 104.97 million tonnes (MT) and 103.12 MT of finished steel and crude
steel, respectively. India was also a net exporter of steel in FY18. Exports and imports of
finished steel were at 4.33 MT and 5.41 MT, during Apr-Nov 2018 (P).
Steel consumption is anticipated to grow 7.5 per cent year-on-year to 95.4 MT in 2018. India’s
steel production is forward to increase from 103.13 MT in FY18 to 128.6 MT by 2021. India’s
expected growth in consumption is due to growing infrastructure construction, automobile and
railway sectors. National Mineral Development Corporation is expected to compound the iron
ore production 75 million tonnes per annum (MTPA) until 2021 indicating new room in the
sector. Demand would be mainly due to growth in the domestic market. Infrastructure, oil and
gas and automotive are the main drivers of growth in the industry. To attain steel capacity build-
up of 300 million tonnes per annum (MTPA) by 2030, India is require to invest US$ 156.08
billion by 2030-31 market.
The steel industry is considered as the largest contributor to the banking systems non-
performing assets (NPAs). The top 5 steel companies contributing to the list of NPA s are Essar
Steel, Monnet Ispat, Bhushan Steel, Electrosteel Steels and JSPL The add up debt of the five
companies stood at ₹1482.89 billion at March-end 2016, with a stressed advances ratio of 45.8
per cent
Answering a question in Lok Sabha, minister of Steel mentioned that contribution of Indian
steel industry to GDP is approximately 2% as per National Steel Policy, 2017.
1.6 Insolvency and Bankruptcy Code 2016

Currently there are multiple overlapping laws which deals with financial failure and insolvency
of companies and individuals in India. The present legal and institutional framework does not
aid lenders in effective and timely recovery or restructuring of defaulted assets and causes undue
strain on the Indian credit system. The framework tried to bring in an element of time-bound
and systematic resolution of insolvencies for maximization of value for all stakeholders and
balancing of information asymmetry besides protection of interest of all stakeholders.
In the year 2000, the level of NPAs rose drastically. During the year 2008 to 2014, Banks lent
indiscriminately that led to a very high percentage of NPAs which was highlighted by the Asset
Quality Reviews of the RBI and this led to a prompt action by the Government. A Committee
was formed, which submitted its Report in 2015 recommending the IBC and immediately, a Bill
was introduced in Lok Sabha and referred to a Joint Committee of Parliament. On 5 May, 2016
IBC was approved by both Houses of Parliament and received the assent of the President of
India on 28 May 2016.

2. LITERATURE REVIEW

Julian R. Franks, Kjell G. Nyborg, and Walter N. Torous in their paper “A Comparison of US,
UK, and German Insolvency Codes” (1996) compare the efficiency of Insolvency codes in
these countries with some certain benchmarks. These codes have been selected because they
cover a wide spectrum of debtor and creditor-oriented insolvency problems. The authors have
evaluated efficiency at three stages in the bankruptcy process – ex ante, interim, ex post. The
author gives a small description about the insolvency codes of all the 3 countries presented at
the top. They are actually compared with reference to 9 prominent characteristics. In the end
the author concludes by stating the significance of all the three Insolvency codes.
C.S. Balasubramaniam in his paper “Non-Performing Assets and Profitability of
Commercial Banks in India: Assessment and Emerging Issues” (2011) described the
concept of NPA and its impact on financial soundness of general banks; it also presented a trend
analysis of NPAs and in deep as saying on the lofty level of borrowings from banking sector.
The final part deals on the significance of restructuring of advances and the Basel III norms. It
has also mentioned the impacts of NPA on the operation of banks and it has been divided to
profitability, liquidity, involvement of management, credit loss. The NPAs under priority sector
has decreased mainly from the contribution of agriculture sector due to the debt waiver schemes
for farmers and the sudden increase in non-priority sector is due to the slowdown in the economy
and stressed financial conditions of corporates. The asset quality of banking sector has improved
mainly because of the written off of the outstanding gross non-performing loans which helped
in restricting the growth of NPAs.
Dr. Suresh Vadde, G. Srinivas in their paper “The Indian Steel Sector: Development and
Potential” (2012) studied the present global scenario of steel industry and especially in the
perspective of Indian context, they also studied the development in production of Crude steel in
both private and public sector and in the end he has highlighted the challenges faced by the
industry. From the secondary data collected from 2005-2011 of the Annual reports of different
steel sectors it is seen that there is a rapid pace in growth of the steel industry and sharp increase
in the demand prospect as well. The private sector is majorly indulged in new technological
aspects and the mergers by some companies has started to show fruit in the sector. In the end
author also has mentioned some challenges like cost of power and non-availability of
metallurgical coke, also the high cost of capital because of high interest charged for steel
industries. Poor infrastructure facilities like poor quality of road, port are also some challenges.
Dr S.M.Tariq Zafar, Dr Adeel Maqbool, S.M.Khalid in their paper “Non-performing Assets
And Its Impact On Indian Public Sector Banks”(2013) dealt with strategic overview of the
NPA problem and emphasize its magnitude, actual causes behind rearing and addressing NPAs
in Indian PSBs. It also tries to analyze the impact of NPA‟s in general and to analyze the impact
of SARFAESI Act implemented with amendment. According to the authors research it was
found that the directed loans system below which commercial banks are bound to prescribed
percentage of their credit (40%) to priority sectors as one of the main reasons of NPAs into
banking sector and it was also found that loans are provided by them to different industrial
houses not on commercial considerations and viability of project instead on political
considerations, affiliations and associations, without making a thorough study of the facts, real
need of the party concerned, its past records, its managerial skills, the prospects of the business
in which it was and is engaged, and so on.
Ashly Lynn Joseph, Dr. M. Prakash in their paper “A Study on Analyzing the Trend of NPA
Level in Private Sector Banks and Public Sector Banks” (2014) studied about the early
warning signals system of banks and the provisions made for four different asset categories in
the banks. The author has collected data for 6 years from 2008 to 2013. From the data, the
amounts of doubtful advances have been increasing year by year for both public and private
banks. The author has also collected the data of the composition of NPAs of nationalized banks
and from that study it’s been concluded that initially the NPAs weighted percentage was high
in priority sector compared to non-priority sector but as year passes the condition has reversed
as non-priority sector leads over the priority sector in the NPA percentage.
Sulagna Das and Abhijit Dutta in their paper “A Study On NPA of Public Sector Banks In
India“ (2014) analyzed 26 public sector Banks with the aid of secondary data from RBI
regarding the net non-performing assets for the past 6 years. The paper also helps us to derive
the important contrast of the NPA occurrence, and management of NPA in different nationalized
banks of India in respect to priority and non-priority sector lending. In the paper author
conducted Anova one-way statistical tool in which he found out that there is a revelatory
difference in mean variation between the NPAs of the banks and in the end it is found out that
there is no eloquent difference between the means of NPA of the banks at five per cent level of
significance.
Laveena in her paper “A Study of Non-Performing Assets of Public Sector Banks in India“
(2016) how the economies are affected by NPAs and comprehending the reasons of it and
discussed about the importance of its effects. The author has segmented the factors into two
headings internal and external. The author has also tried to equate the performance of public
sector banks and private sector banks in India. According to the RBI data the NPA s are
accelerating in the public sector banks as to private sector banks and its having an adverse effect
in their operational activities. The author also studied the causes of account becoming NPA and
highlighted that in the perspective of a borrower and banks.
Javish Valecha, Ankita Anupriya Xalxo in their paper “Overview of The Insolvency and
Bankruptcy Code, 2016 & The Accompanying Regulations” (2017) explains about the
different facets about the Insolvency and Bankruptcy Code 2016 (New Code). Initially the
author explains about the flaws in the existing regime and has segmented that into different
sections. Then later explains about the new code and corporate insolvency, its scope of
applicability, its legal considerations and the recent developments.
Dr. Raj Kumar Mittal and Ms. Deeksha Suneja in their paper “The Problem of Rising Non-
Performing Assets in Banking Sector in India: Comparative Analysis of Public and Private
Sector Banks” (2017) attempted to first determine the level of NPAs in the Indian banking
sector and then tried to find out the causes for increasing NPAs. The author has also tried to
study the magnitude of increase in NPA s in public sector banks as compared to private sector
banks. The author has also analyzed the reasons for increasing NPAs in banks in India and the
methods to reduce the NPA’s level. The author has collected the secondary data from RBI
websites between the years 2005-2016 to analyze these objectives. The major impacts like
liquidity problem, higher cost of capital, declining productivity has been explained. The authors
also study about the various recovery methods like SARFAESI Act, Debt Recovery tribunals
and LokAdalats etc.
Dr. Mohammad Miyan in his paper “A Comparative Statistical Approach towards NPA of
PSU and Private Sector Banks in India” (2017) studies about various parameters like Gross
NPA %, Net NPA %, return % on assets, growth % of Net NPA and growth % of return on
assets of State Bank of India, Punjab National Bank, HDFC Bank, ICICI Bank. The ratio
components mentioned above has been analyzed through mean, coefficient of variation,
coefficient of correlation, CAGR and t-test of significance. The data was collected from annual
reports, magazines, books and journals. The period is from 2011-2016.
Shipra Bhatia in her paper “Crisis in Indian Steel Industry: Issues and Challenges” (2017)
studied the current status of Indian Steel Industry, the trends in production and consumption,
installed capacity and utilization, the current tide in exports and imports in steel industry,
Influence of international demand and supply factors on the Indian Steel industry. In the paper
the secondary data has been collected from the year between 2012 and 2015, the production
growth actually witnessed a declining trend, mainly due to the muted demand from the
construction and automobile sectors and in terms of per capita consumption steel, India stands
at 63 kg as against the world average of 225 kg, indicating a huge potential in the industry. From
the data collected from Import and Export India has mainly been a net importer of steel in the
last few years. But instead 2016-17, the table has turned as India became net-exporter of steel
after a gap of three years. In the closing few periods steel exports from India elevated by over
100 per cent to 8.2mt while imports fell by 36 per cent to 7.4 mt.
Subhadip Choudhuri in their paper “Should the Insolvency and Bankruptcy Code Be
Shadowed by Limitation” (2017) is focused on the applicability of the ‘Limitation Act ‘1963
on the Insolvency and Bankruptcy Code, 2016. The paper also focusses on the different types
of Insolvency Laws in India along with the basic features of corporate insolvency and the
various recommendations made by the Balakrishna committee. It also talks about the main
controversy behind the applicability of the Limitation Act and how it originated. The reasons
why some statutes are not covered by the Limitation Act has also been explained. Lastly, the
paper deals with whether the National Company Law Appellate Tribunal was right in exempting
the Insolvency and Bankruptcy Code’ 2016 from the shackles of the Limitation Act’ 1963.
Sreyan Chatterjee, Gausia Shaikh and Bhargavi Zaveri in their paper “Watching India's
insolvency reforms: a new dataset of insolvency cases” (2017) discusses about the new
dataset of orders passed by the National Company Law Tribunal (NCLT) in the insolvency cases
under the Insolvency and Bankruptcy Code or IBC. There are about 23 areas of information
recorded in the new dataset. The authors are showing their interest by attempting an empirical
analysis on the economic effect of IBC and the performance of judiciary which is under the IBC.
The author analyzed the orders of the provisions of the IBC during the first 6 months of
operationalization and were able to find behavioural shifts among credit market participants
within a short time from passing the law with the help of limited dataset.
Richa Barnerjee, Deepak Verma and Dr. Bimal Jaiswal in their paper “Non-Performing Assets:
A Comparative Study of the Indian Commercial Banks” (2018) has analyzed the impact on
the asset quality of the Indian banks due to the presence of NPAs. The author has also compared
the ROA selected private and public sector banks. The author has taken data of 4 banks to
conduct the study. The 4 banks are: SBI, PNB, AXIS Bank and HDFC Bank. The Gross NPA
and Net NPA have been showing an increasing trend for both SBI and PNB and it has been
moderate for other 2 banks. The Asset Quality management is best for AXIS Bank followed by
HDFC. The ROA is best for HDFC Bank
Dr. Sangeeta Kumar in her paper “A Study on Non-Performing Assets of Indians Banks:
Trend and Recovery” (2018) has collected data from the past 17 years from 2000-2017 of
Gross NPA and Net NPA. The trend produced a result that shows the Net NPA has decreased
from 2000 to 2005 mainly due improvement in the setting up of Asset Reconstruction
Corporation of India, which provided a major boost to recover NPAs. After that there is a
significant increase in NPA mainly due to the hardening of interest rates and lending
indiscriminately during these years. The author has also collected data of recovered NPA
through Lok Adalats, DRTs and SARFAESI Act, the study shows that the percentage of
recovered amount is decreasing that is decreased from 23 % in 2012 to 10 % in 2017. The
deceleration in recovery was mainly due to a reduction in recovery through the SARFAESI
channel. Because of assets reconstruction companies (ARC’s) Indian banks is able to reduce
their stressed assets by selling to them.

3. RESEARCH GAPS

The authors have done extensive research on the topics related to the theme of the paper and
these were sub-divided into search topics such as “NPAs of banks”, “NPAs in Iron and steel
sector”, “Insolvency and bankruptcy Code”, “Loans given to Iron and Steel Sector”. The
research which is available is in the area of “NPAs and performance of banks” and very little
research is available in the area of “Loans and performance of Iron and Steel Sector”. The
authors could not find research in the area of “Insolvency and Bankruptcy code” barring one
research which has been done in the year 2017 where the researchers focused on the legal status
of IBC and NCLT. Based on this the authors have listed the following gaps which are existing:
1. There is not much research done in the NPAs of the bank in the area of Iron and steel
sector
2. There is dearth of research in the functioning and performance of IBC, 2016
3. There is not much research done to analyze the progress made by IBC, 2016

4. OBJECTIVES OF THE STUDY

• To identify and examine the emerging trends of NPAs

• To study Insolvency & Bankruptcy code, 2016.
 • To find out amount of outstanding loan and number of cases under IBC for Iron &
Steel Industry.
• To find out impact of IBC, 2016

5. RESEARCH METHODOLOGY

5.1 Research type: -

The present study is exploratory research where the researchers have explored the NPAs of the
bank for the period of last 10 years. The researcher have also studied the exposure of the banks
during the study period to the total industries as well as to the iron and steel industry.
5.2 Time Period

The present study covers last year data starting from financial year 2008 to financial year 2017-
18.
5.3 Source of Data

The study is primarily based on the secondary data where data has been collected, collated and
compiled from various RBI annual reports, websites like IBBI and NCLT, books, journals, and
various research papers. The authors have also studied various reports published by KPMG,
Mckinsey, Deloitte and EY.
5.4 Sample Selection

The authors have chosen private sectors as well as public sector banks to study the NPAs of
these banks for last 10 years. The authors have focused on the iron and steel sector as there have
been more defaults to the banks and this sector is one of the biggest NPAs for these banks.

6. DATA ANALYSIS

The researchers have collected data from various secondary sources including RBI publication,
CMIE-Prowess, banks website, IBBI website among others. The researchers have collected data
in order to present the situation of the NPAs of the banks and more importantly NPAs to the
iron and steel sector. The time period for such analysis is last 10 years starting from FY 2008 to
FY 2018.
 Total Loans given by Public and Private Sector
Banks
100000.00
Amount in (Rs. Billion)

80000.00

60000.00

40000.00

20000.00

0.00
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Years

Public sector bank Private Sector Bank Total

Figure 1: Total Loans given by Public sector banks and private sector banks to all the
industries. (Source: https://m.rbi.org.in/Scripts/PublicationsView.aspx?id=18523)
The total loans given by the public as well as private sector has seen an upward trend since 2008
and this is in line with the growth of the economy when the country and economy is growing
there is demand created from the various industries to meet that demand. This results in demand
in the monetary requirement from the industries and therefore there is an upward trend in the
loans given to these industries. If we analyze the growth in the loan on y-o-y basis, it was
21.69% from FY 2007-08 to FY 2008-09. The highest growth was recorded in the FY 2012-13
where the loan given increase to 28.56% in comparison to FY 2011-12 and since then the loans
given has recorded a negative growth. The growth in the loan given was in single digit from FY
2013-14 to FY 2018-18. The lowest growth was in the FY 2016-17 where the loans given grew
at 4.34% in comparison to FY 2015-16.

Figure 2: Loans given by Public Sector banks and Private sector banks to Iron and Steel
Sector ( Source: https://rbi.org.in/Scripts/Data_Sectoral_Deployment.aspx)
The amount of loan given to Iron and steel sector was 3.87% in the year 2008. Iron and steel
sector is a part of mineral sub-section of industries as per the reporting format of the banks. The
loans to Iron and steel sector were highest in the year 2012 where the total percentage was 4.83%
and post that it started declining and the figure stood as 3.96% in the year 2017. The lowest loan
to iron and steel sector was in FY 2017-18 where the percentage stood at 3.36% of the total
loans and the absolute amount stood as Rs. 86507.14 billion.
Under the heading current financial distress in the steel sector the author presents the data of
subdued financial performance of the Indian steel companies. Falling profits and rising debts
has been their main concern (Bhatia, 2017).
If you take the sector wise snapshot the companies from the metal industry has the highest
outstanding debt which sums up to 1540 billion, the second in the list is technology media were
the value sums up to 0.5 billion. Total cases registered under IBC in metal industry is 74 which
is the highest compared to other sectors (source: RBI Report)

Total NPAs of Banks to All Industries (Amount

in Billions)
10000
AMOUNT (IN BILLIONS)

5000

0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
YEAR

Public sector bank Private Sector Bank

Figure 3: NPAs of the Public sector banks and private sector banks (Source:
https://dbie.rbi.org.in/DBIE/dbie.rbi?site=publications#!4:)
The figure 3 shows the NPAs of the banks to the all the industries for private as well as public
sector banks. The figure 3 clearly highlights the importance of the mechanism in which loans
are given and governed. The private sector is operating in the same macro environment and the
same eco system but it has remarkably low NPAs than the public sector banks. The total NPAs
of the bank stood as 11.21% in FY 2017-18 where the share of Public sector banks was more
than 14% while private sector banks it was close to 4%.
The magnitude of NPAs in India is alarming, it’s actually like a high bread financial cancer in
nation economic health (Zafar et. al, 2013). The author has also studied about some aberrant
methods to reduce NPA like credit appraisals and monitoring, timely inspection of credit, proper
risk management before giving loans and advances, giving proper working conditions for AMCs
and ARCs. (Joseph et al, 2014).
 NPAs of Banks to All Industries (Percentage )
15.00%
PERCENTAGE

10.00%
5.00%
0.00%
200 200 201 201 201 201 201 201 201 201 201
8 9 0 1 2 3 4 5 6 7 8
% of NPA 2.18 2.10 2.29 2.23 2.81 3.09 3.82 4.32 7.64 9.55 11.2
YEARS

% of NPA

Figure 4: NPAs of the Public sector banks and private sector banks (Percentage)
The figure 4 is something very important and it shows why the Indian banking industry has been
hitting the news line. The NPAs of the banks have been all time high and the growth has been
tremendous. The FY 2007-08 shows the NPAs as 2.18% which has been increasing year on year
basis. The increase in NPAs in 2015-16 was 76% as comparison to the previous year and as the
number it stood as 7.64% of the total loans given, which is an area of concern for the banks. The
growth in NPAs did not stop and it went on increasing year on year, breaking all the records
and in the FY 2017-18, it stood as 11.20%. The share of private sector banks in the NPAs in FY
2017-18 was close to 4% while for public sector it was around 14%. The lowest NPAs were
reported in the year 2009 where the figure stood as 2.10% in these 10 years.

7. INSOLVENCY AND BANKRUPTCY CODE, 2016

There were many processes to deal with the insolvency and recovery of the loans from the
companies such as Sick Industrial companies act, 1985, Securitization and reconstruction of
financial assets and enforcement of security interest act, 2002 etc. but all these act failed to
provide a proper mechanism to deal with the recovery of the loan. The banks have had joint
lenders forum, corporate debt restructuring (CDR), and strategic debt restructuring (SDR) to
deal with stressed assets. The primary reasons was that these processes existed in standalone
manner, legal delays etc. which further led to the deterioration in the quality of assets and claims.
This resulted in the increasing NPAs.
IBC was passed in the parliament on 11 May, 2016 where it will override all the existing
provisions relating to the insolvency and bankruptcy. IBC is one of the major reforms which
has brought respite to the lenders by having a transparent, time-bound resolution of the sick
units. IBC works under the umbrella of IBBI (Insolvency and bankruptcy board of India)
through NCLT (National company law tribunal). IBBI is the apex body for IBC and will also
 be in involved in the administration and supervision of insolvency professionals and information
utilities.
The pillars of IBC are equality, transparency, resolution and pace (report of EY). The mandate
of 180+90= 270 days is what makes the IBC as one of the most Significant reforms of the recent
times which is aimed to bring the credit discipline among the borrowers. Though in reality the
threshold of 270 days has been breached due to various operational and procedural delays, still
it is supposed to be back on track in coming times. It has been only 2 years since IBC started
working and the number of cases which has been registered under this and resolution given by
IBC is what make this act as the game changer in the economy. It operates through 11 branches
of NCLT across India.
IBC makes the distinction between operational creditor and financial creditors (having of default
of Rs. 1 lakh or more) and allows any one of them to file the case for bankruptcy. It works on
the waterfall system for deciding the order of payment to the various parties. The government
dues rank after the financial debt of unsecured creditors while these were ranked higher in
companies act, 2013.
The main differentiating aspect of the IBC is that it depends heavily on administrative structure
to ensure flow of information and resolution of issues in a time bound manner. It gives the
creditors the prerogative right to decide over the Law about the decision to liquidate or revive.
If the corporate resolution plan is not passed or not approved, NCLT shall order for liquidation
of the company or make a public announcement.
Closure by
CIRPs at the
CIRP at the
Quarter beginning of the Admitted Appeal/Review/Settle Withdrawal Approval of Commencement of end of quarter
quarter d under section 12A Resolution plan liquidation plan

Jan-Mar, 2017 0 37 1 0 0 0 36
April-June, 2017 36 129 8 0 0 0 157
July-Sept, 2017 157 232 18 0 2 8 361
Oct.-Dec, 2017 361 147 38 0 7 24 439
Jan-Mar, 2018 439 195 20 0 11 59 544
April-June, 2018 544 245 20 1 14 50 704
July-Sept, 2018 704 235 30 26 32 83 768
Oct.-Dec, 2018 768 264 7 36 13 78 898
Total 1484 142 63 79 302 898

Table 1: Status of cases filed under IBC, 2016 (Source: IBBI report)
The table 1 shows the progress of IBC in last 2 years, since it started functioning. The total
number of cases which have filed under IBC as on Dec., 2018 were 1484. The total number of
cases which were appealed, reviewed or settled were 142 while 63 cases were withdrawn, 79
cases were approved for resolution plan while for 302 cases liquidation commenced. The total
number of cases which were outstanding as of December, 2018 were 898. There were around
30% cases (275 in total) where the number of days were more than 270 while other cases were
less than 270 days. Looking at the number of cases which were filed and which were resolved,
 it does not appear to be a major success in terms of insolvency. There were many cases which
were not resolved within the given mandatory time period of 270 days as well. However, this
should be seen as beginning of an era rather than commenting on the success of the IBC.
The number of cases filed under NCLT were for 123 companies under the sector metal and Iron
and steel sector is a part of metal sector. The total debt due to these 123 companies stood at
1540 billion. As on May, 2018.

Top Defaulters
500.00 444.78443.64
AMOUNT (IN BILLIONS)

450.00 372.84372.48
400.00
350.00
300.00 220.75
250.00
200.00 140.74121.15
150.00 102.73100.6596.35
69.35 51.65
100.00
50.00
0.00

Figure 5: Top defaulter under IBC, 2016

The figure 5 shows the default amount of companies which are in the top list. As per RBI, there
are 12 companies which constitute 25% of the gross NPAs. The above graph shows the list of
top 12 defaulters as on September, 2017 and out of those 12 companies 5 companies are from
Iron and steel sector.

Amount Amount Realization as

Name of Corporate Debtor
Admitted (Rs. In Billion.) Realized (Rs. In Billion.) percentage of Claim

Electrosteel Steels Ltd ₹ 131.75 ₹ 53.20 40.38%

Bhushan Steel Ltd ₹ 560.22 ₹ 355.71 63.49%
Monnet Ispat & Energy Ltd. Pvt. Ltd. ₹ 110.15 ₹ 28.92 26.26%
Amtek Auto Ltd ₹ 126.05 ₹ 43.34 34.38%
Table 2: Status of Top defaulter under IBC, 2016 (source: IBBI report)
RBI has directed these 12 companies to be referred to the IBC, 2016 for bankruptcy proceedings.
Bhushan Steel was the first one to be referred and NCLT approved Tata Steel resolution plan
for Bhushan steel in May, 2018 where Tata Steel offered to pay upfront Rs. 35,200 crores to the
 lenders. Out of those 12 accounts which were referred by RBI, 4 were approved and the above
table shows the status of recovery. The maximum recovery was made in the case of Bhushan
steel where 36.51% was the hair cut for the lenders but it also brought a respite that 63.49% was
recovered.
Date of
Defunct
S.No. Name Commencement of Date of Liquidation order
(Yes/No)
CIRP
1 R.V.Steel and Power Pvt. Ltd. Yes 27-09-2017 21-06-2018
2 Jai Bhavani Steels Enterprises Ltd. Yes 02-04-2018 23-07-2018
3 Impex Steel Ltd. Yes 16-03-2018 18-09-2018
4 Ramdas Ispat and Metal Pvt. Ltd. &Ors Yes 06-04-2018 22-10-2018
5 Kamineni Steel and Power India Pvt.Ltd. Yes 10-02-2017 26-10-2018
6 Vandana Energy & Steels Yes 20-10-2017 31-10-2018
7 Ramanand Steels Ltd Yes 20-03-2018 02-11-2018
8 Pavai Alloys & Steels Pvt ltd Yes 29-06-2018 03-12-2018
9 Gangadhar Steel Ltd No 29-08-2017 11-12-2018
10 Ispat Energy Ltd. Yes 25-04-2018 14-11-2018
11 Gee Ispat Pvt. Ltd. Yes 24-08-2017 05-10-2018
Table 3: Status of liquidation of Iron and steel companies under IBC, 2016 (source: IBBI
report)
The above table shows the iron and steel companies which ended into liquidation as of
December, 2018. There are 11 companies belonging to iron and steel sector which went for
liquidation. There are companies such Kamineni Steel, Vedanta Energy and steel, and
Ramanand Steel, Gangadhar Steel where the resolution period was more than 270 days. The
resolution period was less than 270 day in other cases.

8. CONCLUSION AND SUGGESTIONS

Mounting NPAs are a major concern for any bank, economy and country and more important
for a country like India which is on growth phase. India has been recognized from developing
economy to emerging economy and in order to sustain the long term growth, it is important that
the industry and businesses grow. This can be achieved by having a proper economic policy of
giving and extending credit to those who need this and ultimately help the country to grow,
however the default rate for these loans has been on an increasing trend. India has had many
other ways to deal with these NPAs right from BIFR Act, 1985 to SARFAESI Act, 2002 to S4A
2016 but nothing seem to working in the desired way. This paved way for IBC, 2016.
It has been only 2 years since IBC, 2016 has been implemented and it is considered to a
revolutionary not only in India but globally. IMF and world bank has also reacted positively to
the implementation of IBC, 2016 in India and it has resulted in the improvement of ranking of
India, in terms of ease of doing business.
IBC, 2016 does not comes with a magic wand where the problems of NPAs which existed since
year, can be solved by a wand. This is definitely beginning of a new era in the whole economy
where there is shift from debtors to creditors and creditor is given supremacy and he takes
control of debtor’s assets.
The result of the IBC, 2016 is to be seen and it has been just 2 years since IBC is implemented.
Based on the performance of IBC and others reports, it is found that the IBC works with 11
branches of NCLT, which is too low considering the number of cases pending. The number of
cases which are pending with IBC as on December, 2018 are 898 and 30% of the cases are more
than 270 old. It should not happen the basic strength of the IBC, timely resolution, gets defeated.
IBC does not cover cross border insolvency as of now however it gives guidelines to government
for the same. UNCITRAL model law of Cross-border insolvency should be adopted in India as
well as this is being adopted by more than 41 countries globally. There is a greater need to adopt
technology in the whole process and the process should be online from the perspective of
creditor who can see the progress of the case online. This will also reduce the manual work and
delays in the system.

REFERENCES

[1] Balasubramaniam, C. S. (2012). Non-performing assets and profitability of commercial

banks in India: assessment and emerging issues. National Monthly Refereed Journal Of
Research In Commerce & Management, June, Volume, 1, 41-52.
[2] Chatterjee, S., Shaikh, G., & Zaveri, B. (2017). Watching India’s insolvency reforms: a
new dataset of insolvency cases (No. 2017-012). Indira Gandhi Institute of Development
Research, Mumbai, India.
[3] Chaudhary, K., & Sharma, M. (2011). Performance of Indian public sector banks and
private sector banks: A comparative study. International journal of innovation, management
and technology, 2(3), 249.
[4] Das, S., & Dutta, A. (2014). A Study on NPA of Public Sector Banks in India.
[5] Franks, J. R., Nyborg, K. G., & Torous, W. N. (1996). A comparison of US, UK, and
German insolvency codes. Financial Management, 86-101.
[6] Guleria, K. (2016). A Study of Non-Performing Assets of Public Sector Banks in India.
International Journal of Research in Engineering, IT and Social Sciences, 6(4), 26-34.
[7] Joseph, A. L., & Prakash, M. (2014). A study on analyzing the trend of NPA level in
private sector banks and public sector banks. International Journal of Scientific and Research
Publications, 4(7), 1-9.
[8] Mittal, R. K., & Suneja, M. D. (2017). The Problem of Rising Non-Performing Assets in
Banking Sector in India: Comparative Analysis of Public and Private Sector Banks. Journal
Homepage: http://www. ijmra. us, 7(7).
[9] Miyan, M. (2017). A Comparative Statistical Approach towards NPA of PSU and Private
Sector Banks in India. International Journal of Advanced Research in Computer Science,
8(1).
 [10] Srinivas, G., & Vadde, S. (2016). The Indian Steel Sector: Development and Potential
(No. id: 11334).
Srivastava, V., & Gupta, S. K. (2010). A Study on Non-Performing Assets of Indian Banks.
GYANPRATHA-ACCMAN Journal of Management, 5(2).
[11] The Quarterly Newsletter of the Insolvency and Bankruptcy Board of India January -
March 2018 | Vol. 6
[12] The Quarterly Newsletter of the Insolvency and Bankruptcy Board of India October -
December, 2018 | Vol. 9
[13] Report on Trend and Progress of Banking in India for the year ended June 30, 2018
submitted to the Central Government in terms of Section 36(2) of the Banking Regulation
Act, 1949
[14] Report of EY “The Insolvency and Bankruptcy Code,2016 An overview July 2016”
[15] Report of PWC” Decoding the Code: Survey on Twenty-One Months of IBC in India”
[16] Report of EY “Insolvency and Bankruptcy Code The journey so far and the road ahead
December 2018”
[17] Zafar, S. M. T., Maqbool, A., & Khalid, S. M. (2013). Non-performing assets and its
impact on Indian public sector banks. International Journal of Marketing, Financial Services
& Management Research, 3(2), 68-87.
[18]
https://www.ibbi.gov.in/uploads/publication/QUARTERLY_NEWSLETTER_FOR_OCT_
DEC_2019.pdf
[19] https://m.rbi.org.in/Scripts/PublicationsView.aspx?id=18523
[20]
https://ibbi.gov.in/uploads/publication/QUARTERLY_NEWSLETTER_FOR_OCT_DEC_
2019.pdf
[21] https://rbi.org.in/Scripts/Data_Sectoral_Deployment.aspx
[22] http://www.ijsrp.org/research-paper-0817.php?rp=P686701
[23] http://www.iibf.org.in/documents/IRAC.pdf
[24] https://www.financialexpress.com/industry/banking-finance/indias-bad-loans-here-is-
the-list-of-12-companies-constituting-25-of-total-npa/903396/

View publication stats