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IBC recoveries declining, resolution timelines getting prolonged: Crisil

IBC recoveries declining, resolution timelines getting prolonged: Crisil

The introduction of a focused bankruptcy law has helped improve the credit culture in India, but the last few years have seen a decline in recoveries and the resolution timelines getting prolonged, Crisil Ratings on Friday.

In commemorating the seven years since the implementation of the Insolvency and Bankruptcy Code (IBC), a prominent credit rating agency has highlighted both successes and challenges within the system. The agency notes a concerning decline in recovery rates, dropping from 43% in March 2019 to 32% in September 2023. Concurrently, the average resolution time has surged from 324 days to 653 days, surpassing the stipulated 330 days.

Despite these challenges, the IBC has proven instrumental in resolving debt totaling Rs 3.16 lakh crore across 808 cases in the past seven years. The agency hails the IBC as the most potent code in India's corporate loan history, attributing a notable "behavioral change" in borrowers to the fear of losing companies. Senior Director Mohit Makhija emphasizes that over Rs 9 lakh crore of debt has been settled before reaching the IBC, highlighting a deterrence effect that has tripled the amount of stressed debt resolved through the code.

Identifying impediments, the agency recommends solutions to enhance recoveries and adherence to timelines. It cites limited judicial bench strength and delays in identifying defaults as key issues contributing to the challenges. The recovery rates, it argues, have suffered due to significant delays in the pre-IBC admission stage, increasing from 450 days in fiscal 2019 to 650 days in FY22.

Highlighting the dynamism of the IBC, the agency notes 90 amendments to the law, including recent approvals for the sale of assets/resolution plans on a segregated basis, expansion of National Company Law Tribunal benches to 16, and extensions of timelines for filing claims.

Proposing strategies for improvement, the agency's Director, Sushant Sarode, suggests capacity augmentation, digitalization, and expanding pre-pack resolutions to large corporates. However, there remains a backlog of 13,000 cases under IBC, including 2,073 ongoing corporate insolvency resolutions. As the nation reflects on seven years of the IBC, attention turns to addressing these challenges to maintain and enhance the efficacy of this crucial component of India's financial landscape.

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IBC recoveries declining, resolution timelines getting prolonged: Crisil

IBC recoveries declining, resolution timelines getting prolonged: Crisil

The introduction of a focused bankruptcy law has helped improve the credit culture in India, but the last few years have seen a decline in recoveries and the resolution timelines getting prolonged, Crisil Ratings on Friday.

In commemorating the seven years since the implementation of the Insolvency and Bankruptcy Code (IBC), a prominent credit rating agency has highlighted both successes and challenges within the system. The agency notes a concerning decline in recovery rates, dropping from 43% in March 2019 to 32% in September 2023. Concurrently, the average resolution time has surged from 324 days to 653 days, surpassing the stipulated 330 days.

Despite these challenges, the IBC has proven instrumental in resolving debt totaling Rs 3.16 lakh crore across 808 cases in the past seven years. The agency hails the IBC as the most potent code in India's corporate loan history, attributing a notable "behavioral change" in borrowers to the fear of losing companies. Senior Director Mohit Makhija emphasizes that over Rs 9 lakh crore of debt has been settled before reaching the IBC, highlighting a deterrence effect that has tripled the amount of stressed debt resolved through the code.

Identifying impediments, the agency recommends solutions to enhance recoveries and adherence to timelines. It cites limited judicial bench strength and delays in identifying defaults as key issues contributing to the challenges. The recovery rates, it argues, have suffered due to significant delays in the pre-IBC admission stage, increasing from 450 days in fiscal 2019 to 650 days in FY22.

Highlighting the dynamism of the IBC, the agency notes 90 amendments to the law, including recent approvals for the sale of assets/resolution plans on a segregated basis, expansion of National Company Law Tribunal benches to 16, and extensions of timelines for filing claims.

Proposing strategies for improvement, the agency's Director, Sushant Sarode, suggests capacity augmentation, digitalization, and expanding pre-pack resolutions to large corporates. However, there remains a backlog of 13,000 cases under IBC, including 2,073 ongoing corporate insolvency resolutions. As the nation reflects on seven years of the IBC, attention turns to addressing these challenges to maintain and enhance the efficacy of this crucial component of India's financial landscape.

 
 
 

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