From Subhash Chandra to Videocon:High-profile and extreme haircut cases India witnesses

The ₹6.50-crore repayment plan of media baron Subhash Chandra stayed by NCLT has once again put the saga of loans being forbidden by banks in India under the spotlight. Chandra’s plan covers admitted claims of ₹22,006.57 crore. That means lenders are set to recover only about 0.03% of the admitted amount, leaving a haircut of about 99.97%. Although, creditors are likely to recover higher amount than this through other means This is an extreme example. But it is not the first time Indian lenders have accepted very large haircuts. Over the years, several large companies have gone through the Insolvency and Bankruptcy Code (IBC) process. In some cases, banks recovered most of their money. In others, they recovered only a small part of what they were owed. A 2022 IBBI analysis said that, out of 480 cases resolved until March 31, 2022, financial creditors had recovered only 33% of their claims. It also listed Videocon, Deccan Chronicle, Lanco Infratech, Ushdev International and Zion Steel among cases with very large haircuts. First, what does a ‘haircut’ mean? A haircut means the amount that lenders give up when they accept less money than the debt owed to them. For example, if a bank is owed ₹100 crore and receives ₹20 crore under a resolution plan, the bank has recovered 20% of its claim. The remaining ₹80 crore is a haircut of 80%. Is ‘haircut’ different from write-off? A write-off is different. A bank may remove a bad loan from its books after making the required provisions. This does not automatically mean that the borrower is free from the debt or that the bank has stopped recovery action. RBI’s 2023 framework also allows regulated lenders to use compromise settlements and technical write-offs for stressed accounts, including accounts involving wilful defaulters or fraud, without affecting criminal proceedings. 1. Subhash Chandra: ₹22,006 crore claim, ₹6.50 crore repayment The latest case is that of Subhash Chandra, founder of the Essel group. The NCLT has stayed his repayment plan. The admitted claims against him were ₹22,006.57 crore. Under the plan, he was required to pay ₹6.50 crore. This worked out to a recovery of only about 0.03% of the admitted claims. The haircut was about 99.97%. The claims relate to dues of Essel group companies for which Chandra had given personal guarantees. The case is also important because it is a personal insolvency case, unlike many of the large corporate insolvency cases that India has wittnessed. The process had been contested by some creditors. LIC Housing Finance, for example, had an admitted claim of ₹1,322.39 crore and was proposed to receive about ₹38.09 lakh. 2. Videocon: About ₹64,839 crore claims, ₹2,962 crore plan The Videocon case is one of the clearest examples of a very high haircut. The admitted claims in the insolvency process stood at ₹64,838.63 crore. The resolution plan approved for Twin Star Technologies involved ₹2,962.02 crore. This meant lenders and other creditors would recover only about 4.57% of the admitted claims. The overall haircut was about 95.85%. The NCLAT had noted that secured financial creditors were to receive only about 4.89% if they voted for the plan, while dissenting secured financial creditors were to receive about 4.56%. The Videocon insolvency process began in December 2017. The NCLT approved the resolution plan in June 2021. That means the case took roughly three-and-a-half years to reach the NCLT approval stage. 3. Deccan Chronicle: ₹8,349 crore claims, ₹357.50 crore recovery by financial creditors Deccan Chronicle Holdings, the company behind the newspaper group, entered insolvency proceedings in July 2017. IBBI data shows total admitted claims of ₹8,349.05 crore. Financial creditors accounted for ₹8,180.65 crore of this amount. The amount realised by financial creditors was ₹357.50 crore. That means they recovered only about 4.37% of their admitted claims. The implied haircut for financial creditors was therefore about 95.63%. The NCLT had approved the resolution in June 2019. So the formal insolvency process from July 2017 to June 2019 took nearly two years. The case did not end all disputes. IBBI records show that litigation related to Deccan Chronicle continued in later years. There was also a personal-guarantor angle. In 2024, the NCLT considered insolvency proceedings involving P K Iyer, a personal guarantor to Deccan Chronicle. The company had taken various credit facilities, including a ₹50-crore working capital demand loan from Central Bank of India. 4. Lanco Infratech: ₹53,451 crore claims, about 3% recovery Lanco Infratech was among the large corporate accounts sent into insolvency after the banking system faced a large pile of bad loans. IBBI records show total admitted claims of about ₹53,451 crore in the case. The company entered the insolvency process on August 7, 2017. The process did not produce a successful resolution plan. The NCLT ordered liquidation on August 27, 2018. This is an important difference from Videocon and Deccan Chronicle. In a resolution, a buyer takes over the business and pays an agreed amount to creditors. In liquidation, the company’s assets are sold and the money is distributed according to the legal order of priority. IBBI’s later analysis put the haircut in the Lanco case at about 88%. In other words, lenders recovered only a small part of the money involved in the case. The formal insolvency process from August 2017 to the liquidation order in August 2018 took about one year. However, liquidation and recovery efforts continued after the liquidation order. 5. Ushdev International: about 94% haircut Ushdev International, a steel trading company, also became an example of a large loss for lenders. IBBI’s analysis lists Ushdev International among cases where lenders suffered a haircut of about 94%. IBBI records show that its insolvency process began on May 14, 2018. The company was facing transactions that were later described in IBBI records as preferential and undervalued. The Ushdev case is useful for understanding why recovery can be difficult. The value of a loan depends not only on the amount originally lent. It also depends on the assets available when the borrower gets into trouble, the quality of security available to lenders, the time taken to recover the assets and whether there are legal disputes over those assets. 6. Zion Steel: ₹5,368 crore claims, just ₹15 crore recovery Zion Steel shows how extreme a recovery case can become. IBBI records show total admitted claims of ₹5,368.17 crore. Financial creditors accounted for ₹5,367.02 crore. The total amount realised by all claimants was only ₹15 crore. Financial creditors also received ₹15 crore. That means financial creditors recovered only about 0.28% of their admitted claims. The implied haircut was therefore about 99.72%. The insolvency process began on August 3, 2017. The NCLT approved the resolution on July 10, 2018. The formal process therefore took about 11 months. This case is particularly important because the recovery was even lower than the amount normally associated with a very high haircut. IBBI’s later analysis classified Zion Steel among the cases with a haircut of about 99%. What these cases tell us? These cases show that there is no single pattern in India’s bad-loan recovery system. Some companies have produced relatively strong recoveries. Others have resulted in lenders getting only a few paise for every rupee they were owed. The difference often depends on the value of assets left in the company, whether the business can continue as a going concern, the number of creditors, litigation, the availability of buyers and the time taken to complete the insolvency process. IBBI has also pointed to another problem: lenders may value land and other fixed assets highly when giving loans, but the actual recovery value can be much lower when a company fails. It has also highlighted title disputes and assets held by promoters as factors that can make recovery difficult. The time factor matters Delay can make a bad loan worse. A company that is already under financial stress can lose business, customers, employees and asset value while the insolvency process continues. The early IBC data had shown this problem clearly. IBBI said that many resolution processes took a long time and that delayed resolution could result in very low recovery for financial creditors. ₹100 owed does not mean ₹100 can be recovered This is perhaps the most important point from these cases. If a bank has an outstanding loan of ₹100 crore, it does not mean that the bank can recover ₹100 crore after default. The bank may have security worth less than the loan. The company’s assets may have lost value. Other creditors may have claims. Legal proceedings may delay asset sales. A buyer may be willing to pay only a fraction of the outstanding debt. A 90% haircut means a lender is recovering only ₹10 for every ₹100 of admitted debt. A 99% haircut means the lender is recovering only ₹1. The Subhash Chandra case takes this calculation to an extreme. Against admitted claims of more than ₹22,000 crore, the approved repayment is ₹6.50 crore. But a haircut is not always the same as ‘banks forgave the loan’ This distinction is important. In an insolvency resolution, lenders may accept a lower amount because the alternative could be liquidation, where the expected recovery may be even lower. The large cases show two sides of India’s bad-loan problem. On one side, the IBC has created a formal system in which lenders can take control of a stressed company’s insolvency process and seek a buyer. On the other side, the recovery can still be very low when a company reaches insolvency after years of financial stress. IBBI’s analysis found haircuts of 95.85% for Videocon group companies, 95% for Deccan Chronicle, 88% for Lanco Infratech, 94% for Ushdev International and about 99% for Zion Steel. The Subhash Chandra case is different because it involves personal insolvency and a personal repayment plan. But the basic question is similar: how much of the money owed can creditors actually recover? For banks, the answer depends not only on the size of the original loan. It depends on how quickly the problem is identified, what security is available, how much the underlying business is worth, and how long recovery takes. That is why the real number to watch in any large default is not just the amount borrowed. It is the amount finally recovered.