Recoveries Via IBC Fall To Lowest In 10 Quarters, Number Of Cases Spike
Lenders had to take an average haircut of 88% in December quarter, the highest since IBC was introduced, IBBI data shows.
Recoveries through India’s Insolvency and Bankruptcy Code fell to their lowest in 10 quarters even as the number of cases admitted spiked.
Lenders had to take an average haircut of 88 percent in the quarter ended December, the highest since the new law was introduced, according to Insolvency and Bankruptcy Board of India's data cited in a report by Kotak Institutional Equities.
The low recovery rate of 12 percent in October-December came despite resolution of Essar Steel, a big-ticket IBC case that was cleared by the Supreme Court more than two years after the claim was admitted. Lenders got nearly 92 percent of their Rs 49,000-crore claims. Barring a few cases, almost all resolutions in the third quarter had a haircut of more than 60 percent, the Kotak report said.
The average recovery rate as of December stood at 43.13 percent. That’s much better before the new bankruptcy law came in force. According to RBI data, the average recovery rate under the previous resolutions mechanisms—via lok adalats, debt recovery tribunals and Sarfaesi Act — stood at 10-12 percent in 2016.
Spike In IBC Cases
At 561, the second-highest number of cases were admitted into corporate insolvency resolution process in October-December, behind 565 in the previous quarter. The number of cases entering the insolvency process spiked in the last two quarters.
- 54 percent of the cases were filed by operational creditors in the third quarter, 44 percent by financial creditors and the rest by corporate debtors.
- Overall till December, 49.21 percent cases were triggered by operational creditors, 43 percent by financial creditors and the rest by corporate debtors.
Liquidations Dominate
Of the 1,351 cases closed under the code, 58 percent went into liquidation, according to IBBI data. Only 14 percent cases were resolved with creditors taking an average haircut of 57 percent on admitted claims.
The average duration of resolution is 350 days, the report said. More than 30 percent of 1,961 ongoing cases have crossed 270 days since admission. Kotak cited delay in resolution and higher proportion of cases being referred for liquidation as the key concerns.