Cumulative recovery rate under insolvency resolution falls to 30.18% in September Quarter: Report

There has also been a fall in the number of cases going to/admitted by the NCLT since H2 FY21.

PTIUpdated: Sunday, November 27, 2022, 05:00 PM IST
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Cumulative recovery rate under insolvency resolution falls to 30.18% in September Quarter: Report | Image by Simon Hill from Pixabay

The cumulative recovery rate under the insolvency resolution processes of debt-ridden companies declined to 30.18 per cent at the end of the September quarter, indicating that lenders took more haircut on their exposure, shows a study.

The recovery rate has fallen steeply from a peak of 43 per cent in Q1 FY20.

Of the Rs 7,90,626.2 crore claims from the financial creditors admitted by various benches of the National Company Law Tribunal (NCLT), only Rs 2,43,452.5 crore or 30.18 per cent have been recovered till the end of Q2 FY23, as per an analysis of IBBI data done by Care Ratings.

The overall recovery rate implies a haircut of around 70 per cent for the lenders.

IBBI

The Insolvency and Bankruptcy Board of India (IBBI) is a key institution in implementing the Insolvency and Bankruptcy Code (IBC), which provides for market-linked and time-bound resolution of stressed assets.

Downtrend of cumulative recovery rate

The cumulative recovery rate has been on a downtrend, falling from 43 per cent in Q1 FY20 and 32.9 per cent in Q4 FY22 as larger resolutions have already been executed and a significant number of liquidated cases were either Board for Industrial and Financial Reconstruction (BIFR) cases and/or defunct with high resolution time, the report said.

There has also been a fall in the number of cases going to/admitted by the NCLT since H2 FY21.

Cases admitted by NCLT benches

Since the implementation of the IBC in 2016, close to 5,893 companies have been admitted by various NCLT benches. Out of those cases, operational creditors filed 3,008 cases, a little over 50 per cent, and financial creditors filed 2,531 cases or around 45 per cent. The share of corporate debtors has continued to remain the lowest at around 3 per cent as of September 2022.

Sectoral distribution

The share of the various sectors has largely remained constant compared with the previous period, with the manufacturing sector accounting for the highest at 39 per cent of the overall cases, followed by real estate (21 per cent), construction (11 per cent) and trading (10 per cent).

Case status

The status of the cases has largely remained constant compared with the previous period. Of the total 5,893 cases admitted as of September 2022, only 9 per cent ended in resolution. Of the total admitted cases, as much as 1,807 ended in liquidation (31 per cent), according to the study.

Around 14 per cent (846 cases) closed on appeal/review/settled, while 11 per cent were withdrawn. In terms of the cumulative value, total admitted claims of financial creditors stood at Rs 7,90,626.2 crore as of Q2 FY23, up from Rs 6,84,901.3 crore in March 2022. The incremental addition during Q2 of this fiscal was Rs 10,121.5 crore.

The cumulative money recovered by financial creditors stood at Rs 2,43,452.5 crore as of September 2022, up from Rs 2,25,293.8 crore in March 2022. The Q2 addition stood at Rs 3,054.4 crore.

The delay in resolution, which has been plaguing the process from the very beginning, still remains a challenge. Of the 1,944 ongoing cases, as much as 63 per cent were delayed by more than 270 days as of September 2022, down from 73 per cent in September 2021.

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