IBC recoveries declining, resolution timelines getting prolonged: Crisil

Introduction of a focused bankruptcy law has helped improve the credit culture in India, but the last few years have seen a decline in recoveries and the resolution timelines getting prolonged, Crisil Ratings on Friday. In a note to observe the seven years of the Insolvency and Bankruptcy Code (IBC), the rating agency said the recovery rates have fallen to 32 per cent in September 2023, from 43 per cent in March 2019.

At the same time, the average resolution time has increased from 324 days to 653 days, versus the stipulated 330 days, it said.

The IBC has helped in resolving debt worth Rs 3.16 lakh crore stuck in 808 cases in the past seven years, the leading credit rating agency said.


Its senior director Mohit Makhija said the IBC is "the most potent code" in India's corporate loan history, which has brought a "behavioural change" in borrowers.

"The fear of losing companies has led to over Rs 9 lakh crore of filed debt being settled before the cases arrived at the IBC doorstep for admission. This is around three times the stressed debt resolved via the code in the past seven years, underscoring its deterrence effect," he said.

The agency also recommended solutions around the current challenges on recoveries and timelines, saying there is a need to remove some impediments.

It reasoned that there is a limited judicial bench strength and delays in identification and acknowledgement of default which is leading to some of the troubles.

The recovery rates have been suppressed because of significant delays in the pre-IBC admission stage, it said, pointing out that the same has increased to 650 days in FY22 from 450 days in FY19 increased from about 450 days in fiscal 2019, it said.

The rating agency said 90 amendments have been carried out to the law so far, including some over the last year like approval for sale of assets/resolution plan on a segregated basis, increasing the number of National Company Law Tribunal benches to 16 and extending timelines for filing claims.

Its director Sushant Sarode said Capacity augmentation, Digitalisation and Expansion of pre-pack resolutions to large corporates can help improve the efficiency of IBC.

There is a backlog of 13,000 cases under IBC, which includes 2,073 ongoing corporate insolvency resolutions, he said.

The agency argued that the recoveries from IBC are better than the earlier debt resolution mechanisms, which averaged between 5-20 per cent.