Tag: timeline

The Insolvency and Bankruptcy Code (IBC) needs a stronger push after recovery of about ₹2.5 lakh crore over five years since it took effect, according to Crisil Ratings.

From here, reforms must stress quicker resolution and maximise recovery, the credit rating agency said in a study.

Per the agency: “A closer look at the data shows, however, the recovery rate and resolution timelines have a lot more room for improvement.

“This makes a continuous strengthening of the Code and stabilisation of the overall ecosystem imperative.”

Lesser traction

As of June 30, 2021, IBC had enabled recovery of about ₹2.5 lakh crore, against admitted financial claims of about ₹7 lakh crore, translating to a recovery rate of 36 per cent for the 396 cases resolved out of the total 4,541 admitted.

Of the remaining cases, 1,349 were under liquidation; 1,114 were closed under appeal/ review/ settled or withdrawn, and 1,682 were outstanding.

The agency emphasised that the recovery marks a significant shift in the insolvency resolution process and credit culture in India.

Gurpreet Chhatwal, Managing Director, Crisil Ratings, said: “The recent resolution of a large financial services firm with a recovery of about ₹37,000 crore against admitted financial claim of about ₹87,000 crore, translating to a recovery rate of about 43 per cent, underscores the efficacy of IBC. The resolution value was about 1.4 times the liquidation value.”

The agency underscored that while the IBC has tilted the power equation in favour of creditors from debtors and helped strengthen India’s insolvency resolution ecosystem, its performance against its twin objectives – maximisation of recovery and timebound resolution – has been a mixed bag.

“One, only a few large cases have seen higher recovery. Excluding the top 15 cases (by resolution value) from the 396 resolved cases, the recovery rate halves to 18 per cent.

“Two, average resolution time for the aforementioned resolved cases is 419 days compared with the stipulated maximum of 330 days. About 75 per cen of outstanding cases have already been pending for more than 270 days,” the study said.

Liquidation: a challenge

Nitesh Jain, Director, Crisil Ratings, noted that besides low recovery rate and longer timeframe, a key challenge is the high number of cases going to liquidation.

“As of June 30, 2021, nearly one-third of the 4,541 admitted cases had gone into liquidation, with a recovery rate estimated at merely 5 per cent.

“That said, around three-fourths of these cases were either sick or defunct. With closure of these vintage cases, recovery rate as well as timelines are expected to improve,”he said.

Notwithstanding these challenges, the IBC has played a key role in resolution of stressed assets so far, according to the study.

“Its effectiveness will continue to be tested given the elevated level of stressed assets in the Indian financial system,” it added.