Cases under IBC closed through approval of resolution plans jump to 29 per cent in 3QFY24: India Ratings

Mumbai (Maharashtra) [India], April 3 : India Ratings and Research (Ind-Ra) has reported a significant surge in the closure of cases under the Corporate Insolvency Resolution Process (CIRP), with the percentage of cases concluded through the approval of resolution plans reaching 29 per cent in the third quarter of the financial year 2023-24 (3QFY24), up from 17 per cent in 3QFY23.
This uptick in resolutions is attributed to various structural improvements initiated by the Insolvency and Bankruptcy Board of India (IBBI), indicating positive momentum in the resolution landscape.
Soumyajit Niyogi, Director of Corporate Ratings at Ind-Ra, remarked, "The approval of the resolution plan showed an encouraging number in 3QFY24; however, the overall dynamics have remained sluggish. While the situation for financial creditors remains sluggish, below 20 per cent recovery for operational creditors underscores operating risk in the business."
Over the first nine months of FY24, the closure rate of cases witnessed a notable increase of 27 per cent year-on-year, with 807 cases concluded.
Consequently, the ratio of closed cases to ongoing cases rose to 42 per cent in 9MFY24, compared to 32 per cent in 9MFY23, indicating improved efficiency in resolving cases under the IBC.
Despite these positive trends, certain areas continue to present challenges. Notably, the duration of recovery timelines under the IBC has been a concern, with the average time taken to resolve cases for financial creditors reaching a record high of 686 days in 3QFY24.
This prolonged resolution time has been steadily increasing over the past three years, impacting all segments.
However, despite challenges with recovery timelines, the IBC has demonstrated the highest recovery rate among its peer mechanisms, such as the SARFAESI Act, Debt Recovery Tribunals, and Lok Adalats, in FY23.
This highlights the effectiveness of the IBC in financial recovery compared to alternative channels, even as efforts to reduce resolution timelines continue.
Additionally, the reduction in the gap between admission and closure of cases has been noted, with falling non-performing loans and a preference for out-of-IBC settlements contributing to this trend.
Operational creditors have witnessed the highest realization from the CIRP in three years, indicating improved outcomes in resolution plans.
However, despite the improvement in closure through the approval of resolution plans, liquidation remains the most preferred route, with 46 per cent of overall cases closed through this route in 3QFY24.
The rising trend of ongoing cases crossing the 270-day mark poses challenges, emphasizing the need for continued efforts to streamline the resolution process under the IBC.