The advent of Insolvency and Bankruptcy Code (IBC) has resulted in a recovery rate of 43 per cent, which, according to rating agency CRISIL, is “respectable”.
As on March 31 of this year, the resolution plan for 94 stressed assets was approved by the National Company Law Tribunal (NCLT).
“For this set of 94 accounts, resolution has been reached for Rs 75,000 crore out of Rs 1.75 trillion total claim of financial creditors admitted. That makes for a respectable recovery rate of 43 per cent,” said a knowledge paper prepared by industry body ASSOCHAM and rating agency CRISIL.
“Also, post-implementation of the IBC, CRISIL estimates the banking sector’s gross NPA (aggregate) dropped to 10% in March 2019 from 11.5% at the end of fiscal 2018,” it said, adding that India’s resolving insolvency score improved to 40.8 in 2019 from 32.6 in 2016 after the IBC.
The IBC regime also improved India’s ease of doing business’ ranking to 77 in 2019 from 130 in 2017.
However, the IBC is a work-in-progress and despite two amendments brought forward, challenges remain, with the major one being adherence to the IBC timeline.
Of the 1,858 cases admitted in the NCLT under the IBC, 1,143 cases were outstanding as on March 31, 2019. Of these outstanding ones, 32 per cent had surpassed the stipulated 270-day resolution timeline, the paper noted. “Also, there are a few big-ticket accounts for which resolution has not been finalised for over 400 days,” it said.
“Then, there are other challenges such as burden on NCLT to resolve the large number of cases, clarity on priority of claims, limited number of information utilities, liquidation at a ‘going concern’ level, and creation of a secondary asset market, which need to be addressed,” said CRISIL’s President-Ratings, Gurpreet Chhatwal.