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With the debt recoverable rate going down to 30.8 per cent or Rs 243,452.5 crore (lenders foregoing 70 per cent of their admitted claims of Rs 790,626.2 crore), the number of cases admitted for Corporate Insolvency Resolution Process (CIRPs) has increased since the launch of the Insolvency and Bankruptcy Code in 2016, said CARE Ratings in a report.
Chennai, Nov 29,2022: With the debt recoverable rate going down to 30.8 per cent or Rs 243,452.5 crore (lenders foregoing 70 per cent of their admitted claims of Rs 790,626.2 crore), the number of cases admitted for Corporate Insolvency Resolution Process (CIRPs) has increased since the launch of the Insolvency and Bankruptcy Code in 2016, said CARE Ratings in a report.
The report also said the trend in the loan recovery rate is also going down.
In a research report, CARE Ratings said after slowing in H2FY21 and FY22, the number of insolvency cases increased by 24 per cent y-o-y in Q2FY23.
“However, despite the increase, the number of cases admitted to the insolvency process continued to be lower compared to earlier quarters in FY19/20. The distribution of cases across sectors has remained broadly similar, compared to earlier periods,” CARE Ratings said.
According to the report, the overall recovery rate till Q2FY23 was 30.8 per cent implying a haircut of approximately 70 per cent.
“However, the cumulative recovery rate has been on a downtrend, decreasing from 43 per cent in Q1FY20 and 32.9 per cent in Q4FY22 as larger resolutions have already been executed and a significant number of liquidated cases were either BIFR (Board for Industrial and Financial Reconstruction) cases and/or defunct with high resolution time,” the CARE Ratings report notes.
The number of cases admitted for Corporate Insolvency Resolution Process (CIRPs) has increased each quarter since the launch of the Insolvency and Bankruptcy Code (IBC) in 2016, highlighting the rising acceptance of IBC as an effective debt resolution mechanism.
The admission of cases has increased y-o-y in Q2FY23 by around 24 per cent after reducing in the last few quarters in FY21 and FY22, however, despite the increase, the number of cases admitted to the insolvency process continues to be lower compared to earlier quarters in FY19/20.
According to CARE Ratings, the IBC has continued to gain in popularity, with close to 6,000 companies being admitted and a significant number of these cases on a cumulative basis being filed by the financial creditors (2,531 cases) and the operational creditors (3,008 cases).
As of September 2022, the share of financial creditors has decreased, while that of operational creditors has increased. The share of corporate debtors has continued to remain the smallest over the same period.
The share of the various sectors has largely remained constant compared with the previous period.
The manufacturing sector accounts for the highest share at 39 per cent of the overall cases, followed by the real estate (21 per cent), construction (11 per cent) and trading sectors (10 per cent), the credit rating agency said.
As regards the status of the cases under the Corporate Insolvency Resolution Process (CIRP), it remained constant compared with the previous period.
Out of 5,889 cases admitted into CIRP at the end of September 30, 2022, only 9 per cent have ended in approval of resolution plans, while 33 per cent remain in the resolution process versus 35 per cent as of the end of March 2022, the report said.
A total 1,807 have ended in liquidation (31 per cent of the total cases admitted). Meanwhile, 76 per cent of such cases were either BIFR cases and/or defunct.
“Around 14 per cent (846 CIRPs) have been closed on appeal/review/settled, while 11 per cent have been withdrawn under Section 12A. A significant number of withdrawn cases (around 54 per cent) were less than Rs 1 crore, while the primary reason for withdrawal has been either the full settlement with the applicant (40.6 per cent) or other settlement with creditors (24 per cent),” CARE Ratings said.
As to the delays, CARE Ratings said of the 1,944 ongoing CIRPs, there has been a delay of more than 270 days for the completion of the process of 63 per cent of cases in September 2022 which is a decline of 10 per cent as compared to 73 per cent in September 2021.
“Further, we can observe that the ‘more than 90 days but less than 180 days’ segment is the second largest indicating that quite a few cases have commenced in the last quarter, while the other two categories continue to have quite a few cases in them highlighting the significant delays in the process,” the report notes.
