Quick Take | Time is money. SBI's sale of Essar loans shows IBC has not learnt this lesson

Ravi Krishnan
Moneycontrol News

500 days and counting. That’s how long the Essar Steel resolution process has taken under the insolvency and bankruptcy code. State Bank of India, the lead lender to Essar steel, has now run out of patience. It wants to sell its Rs 15,431-crore loan to Essar and has set a reserve price of Rs 9,587 crore, or about a 38 percent discount.

This is despite the committee of creditors approving the resolution plan of Arcelor Mittal which promised a minimum recovery fo Rs 11,313 crore to SBI. Remember, the Ruias have offered an even higher amount with a last-minute offer which is wading its way through the legal process. Look at it another way, SBI’s reserve price of Rs 9,587 crore is the present value of the Rs 11,313 crore, using a discount rate of 18 percent. Clearly, time is money.

Indeed, a quick resolution is one of the key promises of the bankruptcy code. It was supposed to resolve cases within 270 days at the most and better India’s record at bad loan recovery from the previous average of 4.3 years. But that hasn’t happened in several high profile cases which are stuck in litigation. The legal system doesn’t seem to recognise the time value of money, perhaps owing to the fact that there isn’t enough infrastructure to deal with the spate of cases.