Resolutions under Insolvency and Bankruptcy Code highest in FY24: Crisil

Recovery for financial creditors, however, declined to 27% compared to 36% in FY23

Resolutions under India’s Insolvency and Bankruptcy Code (IBC) was the highest in FY24, with 269 cases receiving National Company Law Tribunal (NCLT)’s nod, up 42 per cent compared to FY23 when 189 cases were resolved, a report by CRISIL stated on Friday. Higher resolution was aided by greater investor interest in turnaround of stressed assets and appointment of new NCLT members.

According to the report, about 88 per cent of the 269 cases resolved in FY24 are from the backlog of earlier years’ admissions. Additionally, resolutions in the real estate and manufacturing sectors witnessed robust growth of around 200 per cent and 22 per cent, respectively, in FY24 compared to FY23.

“In the real estate sector, healthy demand growth for residential real estate in FY24 and expectation of healthy growth over the next two financial years have sparked interest among resolution applicants. In manufacturing, resolutions for mid-sized and small companies were in focus as many larger companies were already resolved,” the report said.

“The higher case resolution momentum is a result of continuous efforts to improve the resolution throughput rate of IBC through structural reforms, the most prominent being the appointment of 15 additional NCLT members in the later part of FY23,” said Mohit Makhija, senior director, CRISIL Ratings.

While resolutions have seen a robust increase, recoveries for financial creditors have seen a decline in FY24. During the period, resolution plans witnessed recovery rates of 27 per cent of admitted claims, lower than 36 per cent realized in FY23. Further, resolution timelines were stretched to 850 days, compared with 825 days in FY23.

“One of the hurdles in maximizing recovery and reducing resolution timelines is the load of ongoing cases at NCLT — 4,400 cases as of March 2024. Lack of a common mediation platform for both promoters and lenders to discuss and find solutions for a quicker settlement was another hurdle,” the CRISIL report stated.

For faster resolutions, the Insolvency and Bankruptcy Board of India (IBBI) is eyeing introduction of formal out-of-court solutions such as Insolvency Mediation, involving mediation pre- and post-admission to seek consensus among stakeholders for settlement, thereby preserving the business value of the stressed company through faster resolutions.

According to Sushant Sarode, director, CRISIL Ratings, delay in resolution not only impairs the asset value but also reduces the chance of its revival. Resolutions over the past three financial years indicate that a one-year delay in resolution depletes the recovery rate by 800-1,000 bps.

During her Budget speech, Finance Minister Nirmala Sitharaman highlighted that IBC has resolved more than 1,000 companies, resulting in direct recovery of Rs 3.3 trillion to creditors. Additionally, 28,000 cases have been disposed of, involving Rs 10 trillion, prior to admission into insolvency proceedings. According to the Economic Survey, for 2023-24, the IBC has created an optimal incentive-disincentive mix to facilitate above-board and transparent dealings in creditor-debtor relations. Data shows, in the eight years since 2016, 31,394 corporate debtors involving a value of Rs 13.9 trillion have been disposed of (including pre-admission case disposals) as of March 2024.