The Bank Employees Federation of India (BEFI) has strongly criticized the loan resolution process under the Insolvency and Bankruptcy Code (IBC), claiming that banks have suffered massive losses due to high haircuts in debt recovery. According to BEFI, banks have effectively lost ₹8 lakh crore, raising serious concerns about the effectiveness of the IBC in recovering public money.
IBC Loan Resolution: Huge Losses for Banks
BEFI’s statement comes in response to a recent reply by Finance Minister Nirmala Sitharaman in the Rajya Sabha. In her response to a question by MP A A Rahim, she revealed that, as of December 2024, a total of 1,119 cases had been resolved under the IBC, resulting in the recovery of ₹3.58 lakh crore for creditors. However, the minister did not disclose the amount of haircut applied in these cases.
Citing data from the Insolvency and Bankruptcy Board of India (IBBI), BEFI highlighted that banks have recovered only 31% of their total claims under the IBC, while suffering an average haircut of 69%. The total claims by banks stood at ₹11.39 lakh crore, meaning that ₹8 lakh crore has been effectively written off. BEFI argues that this represents a massive loss of public money, benefiting corporate defaulters at the expense of banks.
Reliance Communications Case: 99.2% Haircut Raises Questions
One of the most controversial cases cited by BEFI is the resolution of Reliance Communications (RCIL), formerly owned by Anil Ambani. The National Company Law Tribunal (NCLT) had admitted claims amounting to ₹47,251 crore from various banks. However, Mukesh Ambani’s company acquired RCIL for just ₹456 crore. This means that banks recovered only 0.92% of the admitted debt, suffering a staggering 99.2% haircut.
Effectively, banks lost ₹46,795 crore in this single case alone, raising serious concerns about how corporate insolvencies are being resolved under the IBC. BEFI called this an example of how big businesses are benefiting from the law, while banks and depositors bear the financial burden.
₹16.61 Lakh Crore Written Off Since 2014, Says RBI Data
BEFI also cited data obtained from the Reserve Bank of India (RBI) through an RTI (Right to Information) request. The data revealed that from April 2014 to September 2024, banks wrote off bad loans worth ₹16.61 lakh crore. This was done as part of a policy to clean bank balance sheets. However, BEFI pointed out that despite these massive write-offs, banks were able to recover only ₹2.69 lakh crore, which amounts to just 16% of the total written-off amount.
The low recovery rate has raised concerns that the IBC and other mechanisms for handling non-performing assets (NPAs) are not serving their intended purpose. Instead of helping banks recover money, the process appears to be benefiting large corporate borrowers who manage to escape financial liabilities.
BEFI Demands Scrapping of IBC 2016
The Bank Employees Federation of India has long been vocal about the need for stricter laws to recover bad loans from corporate defaulters. The union has accused the government of enabling financial losses through the IBC, which it claims has legalized the “looting” of public money.
BEFI has put forward several demands, including:
- Strict action against willful defaulters: BEFI has urged the government to initiate criminal proceedings against major corporate defaulters instead of allowing them to benefit from haircuts and loan waivers.
- Recovery of bad loans: The union is demanding stronger legal mechanisms to ensure that banks recover a higher percentage of their outstanding loans rather than writing them off.
- Scrapping of IBC 2016: BEFI argues that the IBC, which was introduced in 2016, has failed to serve its purpose and should be abolished or significantly reformed.
- Public awareness and protest: BEFI has called on the general public to raise their voices against what it describes as the “plundering of public money” through bad loan write-offs.
Growing Concerns Over Corporate Debt Resolution
The latest revelations about loan recoveries under the IBC have reignited debates about how India handles corporate debt. While the government and regulators argue that the IBC has streamlined the resolution process, critics like BEFI believe that it has primarily benefited large business houses at the cost of public sector banks.
With ₹8 lakh crore lost due to haircuts and ₹16.61 lakh crore written off in the last decade, BEFI is demanding urgent reforms to prevent further financial losses. As the debate continues, pressure is mounting on the government to reassess its approach to handling bad loans and ensuring greater accountability in the corporate sector.
