Even after two years, the corporate insolvency resolution process continues to smooth out its kinks. A cursory look at the latest data from the Insolvency and Bankruptcy Board of India (IBBI) shows that while delays in the resolution process persist, liquidation remains dominant, which experts say could be an unhealthy benchmark.
As on June this year, 2,162 cases have been registered, of which 286 new cases were admitted during the June quarter alone. However, 55 per cent or 475 cases were closed till date via liquidation of the corporate debtor, while only 120 cases or 15 per cent were resolved with an average haircut of over 55 per cent on admitted claims. Of the 139 cases, which were closed in the last quarter, only 22 cases were resolved, while more than half or 87 cases to be precise went into liquidation. The high number of liquidated cases and duration of resolution remain primary concerns, noted brokerage Kotak Institutional Equities.
Liquidation remains dominant in overall closure of cases under NCLT. The number of cases admitted to
NCLT remained at 286, down sequentially. Out of the total admitted cases as on June 2019, over 50 per cent or 1,135 cases were admitted in FY19. This reflects the increasingly pivotal role played by insolvency court in resolution of stressed assets despite the introduction of a new circular from the RBI in June on resolution of stressed accounts.
On the other hand, of all the 120 cases resolved under the insolvency process, financial creditors took a haircut of over 55 per cent on admitted claims. Worse, the haircut on resolved cases in the last quarter was as high as over 75 per cent. Barring a few exceptions, almost all resolutions in the last quarter were over 50 per cent.
The premium received on resolution (2X of liquidation value) compared to opportunity cost on liquidation is high but decreasing sequentially. The average premium to liquidation value was high at 1X for accounts resolved.
While some accounts have shown superior results, the overall haircut scenario is dismal, Kotak noted.
The average duration of resolution is over 350 days for all resolved cases till June hinting at greater chances of cases facing liquidation under the NCLT route. More than 50 per cent of overall ongoing cases have crossed 270 days. To be precise, of the 1,292 ongoing cases, 445 cases have crossed past the stipulated 275 days since admission, while another 221 cases have crossed 180 days since admission and analysts suspect the number of cases facing liquidation could see a significant jump in the next few quarters.
Amendments are being mooted to increase the resolution time to 330 days from 270, which analysts hope could accelerate the pace of resolution, especially on some of the large marquee accounts in the steel sector. Lastly, the available number of insolvency professionals is significantly higher at over 2,600 than the number of corporate debtors admitted under the insolvency process.