IBC process needs to speed up; private investment may remain muted

With the Insolvency and Bankruptcy Code (IBC) entering its third year of operation, total realisable value through the process at the end of December 2019 stood at Rs 1.58 trillion. The Economic Survey says although the implementation of IBC is making slow progress, risk aversion of banks to lend further may not reduce unless it speeds up.

Therefore, risk premiums could continue to be high and cuts in repo rates not transmit to lowering lending rates. Private investment could, therefore, remain muted, it said. 

The IBC process has contributed in reducing the non-performing assets (NPA) of the banking sector from 11.2 per cent of gross advances in March 2018 to 9.3 per cent in March 2019. However, the NPA ratio remains the same six months forward, at 9.3 per cent, in end of September 2019.  

In the October-December quarter (Q3FY20), the number of cases where a corporate insolvency resolution process has been initiated stood at 562 of which 245 were initiated by financial creditors, 301 by operational creditors and the rest 16 by corporate debtor themselves. 

Of the cases admitted in Q3, 41.2 per cent of the cases are from manufacturing sector, followed by 19 per cent in real estate, renting, and business activities sector.

According to the Survey, resolution under IBC has been much higher as compared to other processes. 

The data shows the amount recovered as a percentage of amount involved in 2017-18 and 2018-19 has been much higher as compared to Lok Adalat, Debt Recovery Tribunals and through other means. The IBC provides a timeline of 330 days to conclude a CIRP. This push has meant that proceedings under IBC take on average about 340 days, including time spent on litigation, in contrast with the previous regime where processes took about 4.3 years.

With the IBC now firmly in place to fix the NPA problem, the Survey feels the Debt Recovery Tribunals can be phased out or integrated with the IBC.

The IBC mechanism now boasts of a strong ecosystem, comprising of three insolvency professional agencies, 11 registered valuer organisations and 2,374 registered valuers as well as 2,911 insolvency professionals as of December 2019.