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Financial creditors waive Rs 790,626 cr under insolvency resolution process: CARE Ratings

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With the recoverable rate falling to 30.8 per cent or Rs 243,452.5 crore (lenders waiving Rs 70 per cent of their admitted claims of Rs 790,626.2 crore), the number of cases admitted for Corporate Insolvency The resolution process (CIRPs) has increased since the launch of the Insolvency and Bankruptcy Code in 2016, said CARE assessments.



The report also said that the trend in the loan recovery rate is also decreasing.

In a research report, CARE Ratings said that after a slowdown in H2FY21 and FY22, insolvencies rose 24 percent yoy in Q2FY23.

“Despite the increase, the number of cases admitted to the insolvency process remained lower compared to previous quarters in FY19/20. The distribution of cases across sectors has remained broadly similar compared to previous periods,” said CARE Ratings.

According to the report, the overall recovery rate through Q2FY23 was 30.8 percent, implying a haircut of about 70 percent.

“However, the cumulative recovery rate is on a downward trend, from 43 percent in Q1FY20 and 32.9 percent in Q4FY22, as larger resolutions have already been made and a significant number of liquidated cases either BIFR (Industrial and Financial Reconstruction Council) fallen and/or defunct at high resolution time,” notes the CARE Ratings report.

Since the launch of the Insolvency and Bankruptcy Code (IBC) in 2016, the number of cases admitted for the Corporate Insolvency Resolution Process (CIRPs) has increased every quarter. IBC as an effective debt resolution mechanism.

Business admissions increased yoy in Q2FY23 by about 24 percent after declining in the last few quarters in FY21 and FY22. However, despite the increase, the number of cases admitted to the insolvency process remains lower compared to previous quarters in FY19/20.

According to CARE Ratings, the IBC has grown in popularity, with nearly 6,000 companies admitted and a significant number of these cases being filed on a cumulative basis by the financial creditors (2,531 cases) and the operating creditors (3,008 cases).

As of September 2022, the share of financial creditors has decreased, while that of operational creditors has increased. The share of corporate debtors remained the smallest in the same period.

The share of the various sectors has remained largely constant compared to the previous period.

The manufacturing sector accounts for the largest share with 39 percent of the total cases, followed by the real estate sector (21 percent), the construction sector (11 percent) and the trade sector (10 percent), according to the credit rating agency.

Regarding the status of the cases under the Corporate Insolvency Resolution Process (CIRP), it remained constant compared to the previous period.

Of the 5,889 cases admitted into CIRP at the end of September 30, 2022, only 9 percent ended in resolution plan approval, while 33 percent are still in the resolution process compared to 35 percent at the end of March 2022, the report said.

A total of 1,807 ended in liquidation (31 percent of the total number of admitted cases). Meanwhile, 76 percent of such cases were either BIFR cases and/or defunct cases.

“Approximately 14 per cent (846 CIRPs) have been closed on appeal/review/settlement, while 11 per cent have been withdrawn under section 12A. A significant number of cases withdrawn (approximately 54 per cent) were less than Rs 1 crore, while the main reason for withdrawal was either the full settlement with the applicant (40.6 percent) or another settlement with creditors (24 percent), ”said CARE Ratings.

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