FALLING RECOVERY RATES & DELAY IN RESOLUTION DENT IBC’S SUCCESS’
Why in the News?
- Recovery under the Insolvency and Bankruptcy Code (IBC) drops from 43% to 32% between March 2019 and September 2023.
Extended Resolution Time:
- The average resolution time under IBC rises from 324 to 653 days, surpassing the stipulated 330 days.
- Limited judicial bench strength and a prolonged pre-IBC admission stage lead to significant delays.
CRISIL’s Insights:
- CRISIL Rating attributes the challenges to two main factors:
- constrained judicial bench strength and
- delayed default acknowledgment.
- A substantial increase in the pre-IBC admission stage duration, reaching 650 days in fiscal 2022, hampers recovery rates.
Impact on IBC’s Success:
- CRISIL notes that IBC, established in 2016, has positively influenced India’s credit culture by addressing stressed assets.
- Despite improvements, challenges such as delayed processes and limited bench strength impede the code’s overall success.
Deterrence Effect:
- The IBC acts as a deterrent, prompting bad-loan cases to be resolved before reaching its gates.
- Large bad-loan cases are now addressed more efficiently, preventing them from reaching the IBC.
Mixed Recovery Outcomes:
- On average, creditors realize 32% of admitted claims under IBC, demonstrating better recovery rates compared to previous mechanisms.
- Alternative mechanisms had recovery rates ranging from 5% to 20%, highlighting the effectiveness of the IBC in enhancing recovery outcomes.
Delays in the identification and acknowledgment of defaults contribute to reduced recovery rates.