MUMBAI: Lenders continue to take deeper haircuts/losses from the insolvency and bankruptcy process which has from day-one been plagued by ordinate delays due to frequent adjournments of hearings which is largely blamed on the collusion between ex-promoters and resolution professionals. As a result, the average haircut that lenders are forced to take hovers around 70% as of the December quarter when overall recovery stood at 31.4%.
According to an analysis of the latest IBBI data compiled by Care Ratings, the cumulative recovery rate has been on a downtrend, decreasing from 43% in Q1FY20 and 31.4 in Q3FY25, implying a haircut of 68.6%, as larger resolutions have already been executed and a significant number of liquidated cases were either BIFR cases and/or defunct with long-resolution time.
Of the resolved cases only 13.8% ended in resolution, while 24.3% remain in the resolution process as liquidation remains the most common path of closure under the IBC process with over 2,700 cases or (33.1% of admitted cases) ending up in liquidation. Btu as much 78% of liquidation are either from the legacy BIFR cases and/or defunct. Around 15.1% (1,236 cases) have been closed on appeal /review /settled, while 13.8% have been withdrawn.
Total admitted claims of financial creditors in Q3 were worth Rs 9,509.7 crore while cumulatively it totals Rs 11,39,304.6 crore to Rs 11.39trillion. Of the total liquidation value stood at Rs 1,584.5 in Q3 while for the system it adds up to Rs 219,722 crore and lenders realization was Rs 2,705 crore in Q3 and for the system, it was Rs 357,677 crore.
However, since the measure of the effectiveness of the INC is the ratio of liquidation to resolution, thanks to several initiatives to improve the outcomes, this ratio has improved from 5.06 in FY18 to 1.32 during the first three quarter of the current fiscal, he said, adding but when it comes to the average time taken for resolution/liquidation, this continues to be an pain area, said Sanjay Agarwal, a senior director with the agency.
After slowing during the pandemic, the number of insolvency cases increased around 11% in Q2 but despite the increase, the number of cases admitted remains lower, and the number of ongoing cases are below 2,000 now.
In Q3, around 140 cases were initiated as cases initiated by both corporate debtors and operational creditors has come down significantly over time.
So far over 8,100 companies have been admitted to various NCLTs since the IBC came into force from May 2106, of which financial creditors’ cases stood at 3,810, and those by operational creditors at 3,861.
Though there was an –on-year increase of 11% in new admission in Q3, the number of cases admitted continues to be lower compared to earlier quarters and has continued to remain less than 1,000 for the trailing 12 months period.