Recovery from all insolvency and bankruptcy cases, excluding the top nine cases referred by the Reserve Bank of India, stood at 24% as of March 2021. In a research report, Macquarie said the recovery rate for the top nine cases stood at around 56%, making the overall figure look big.
The latest trends and report from the RBI point to a recovery rate of 45% for cases under IBC. According to the RBI report, 1,953 cases involving ₹2.32 lakh crore were referred, and ₹1.05 lakh crore were recovered during fiscal year 2019-20. Other resolution methods such as Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI) showed a recovery rate of sub 25%.
“A careful examination of data released by Insolvency & Bankruptcy Board of India (IBBI) reveals that recovery rates are swayed by the top 9 accounts, barring which, the recovery rate is just 24% under IBC,” said Macquarie report.
Among the top nine were large steel accounts, where recovery rates were very good. Complex assets, especially in infrastructure-related sectors like power, have been difficult to resolve, as there haven’t been many takers/buyers for these assets
According to IBBI data quoted by Macquarie, of the total 4,300 odd cases that have been admitted to IBC since fiscal year 2017, only 8% have been resolved, and nearly 40% cases are still pending. A large 30% of the cases have seen liquidation.
Rating agency ICRA on Monday had said despite a dull fiscal year 2021, financial creditors could realize about ₹55,000 crore- ₹60,000 crore in fiscal year 2022 through successful resolution plans from the IBC. In FY21, the total realizations were at ₹26,000 crore, almost a quarter of what it was in FY20.
The outbreak of the pandemic in fiscal year 2021 has battered the prospects for stressed asset resolution. According to ICRA, pandemic has increased operational challenges for the various parties involved in a corporate insolvency resolution process (CIRP), which resulted in limited cases yielding a resolution plan. That apart, the suspension of new proceedings under IBC for the entire fiscal resulted in a sharp slowdown in the resolution process.
