Recoveries under IBC only one-third of claims, process needs stronger push: Crisil Ratings

It can be noted that the commentary from the leading credit rating agency comes amid concerns raised over low recoveries of about 5 per cent in recent high-value cases.

Published: 03rd November 2021 03:42 PM  |   Last Updated: 03rd November 2021 03:42 PM   |  A+A-

Bankruptcy law.

For representational purposes


MUMBAI: Only a third of the admitted financial claims of insolvent companies have been recovered since the onset of the bankruptcy process five years ago, a domestic credit rating agency said on Wednesday.

With only Rs 2.5 lakh crore in recoveries, there is a need for a “stronger push” to make resolutions under the Insolvency and Bankruptcy Code (IBC) process more effective, Crisil said, admitting that the law has tilted the power equation in favour of creditors from debtors.

“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,” the agency said.

It can be noted that the commentary from the leading credit rating agency comes amid concerns raised over low recoveries of about 5 per cent in recent high-value cases.

It can be noted that initially, the recoveries were much higher in specifically earmarked dozen accounts.

IBC's performance against its twin objectives - maximisation of recovery and timebound resolution – has been a “mixed bag”, the agency said.

It said only a few large cases have seen higher recovery.

If we exclude the top 15 cases by resolution value, the recovery rate in the remaining 396 resolved cases halves to 18 per cent.

Additionally, the average resolution time for the resolved cases is 419 days compared with the stipulated maximum of 330 days, it said, adding that about 75 per cent of outstanding cases have already been pending for more than 270 days.

“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,” its director Nitesh Jain said.

He, however, added that recovery rate, as well as timelines, are expected to improve as around three-fourths of these cases are vintage ones with the units being either sick or defunct.

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

Its effectiveness will continue to be tested given the elevated level of stressed assets in the Indian financial system, the agency said.

Its managing director Gurpreet Chhatwal seemed to point to the resolution of DHFL through a sale to Piramal Group, which led to the recovery of Rs 37,000 crore as against admitted claims of Rs 87,000 crore, as a case that underscores the efficacy of IBC.

The agency said recommendations of the Standing Committee on Finance made in August need to be implemented faster for the process to be more effective and also welcomed the appointment of 18 new members to NCLT.

The recommendations include developing specialised National Company Law Tribunal (NCLT) benches to hear only IBC matters, establishing a professional code of conduct for the committee of creditors (CoC), strengthening the role of resolution professionals, digitalising IBC platforms in order to make the resolution process faster and maximise the realisable value of assets.


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