29% of cases were closed through approval of resolution plans in the Q3 of FY24: India Ratings

IBC Resolution: Around 29 per cent of cases were closed through approval of resolution plans in third quarter of FY24, up from 17 per cent in same period last year. This increase is attributed to various structural improvements implemented by Insolvency and Bankruptcy Board of India (IBBI), including dition of judicating members and efforts to streamline processes through ongoing engagement with stakeholders. However, questions linger about long-term sustainability of se reforms.

Soumyajit Niyogi, Director of Corporate Ratings at Ind-Ra, while acknowledging encouraging uptick in resolution plan approvals in 3QFY24, has highlighted persistent challenges in overall dynamics. Of particular concern is recovery rate for operational creditors, which remains below 20 per cent, indicating lingering operational risks within businesses.

Furrmore, closure rate of cases over first nine months of FY24 showed a significant 27 per cent year-on-year increase, resulting in 807 cases concluded. This progress has led to a notable rise in ratio of closed cases to ongoing cases, reaching 42 per cent in 9MFY24, compared to 32 per cent in 9MFY23 and 51 per cent in FY23.

Despite se positive strides, challenges persist, especially regarding duration of recovery timelines under Insolvency and Bankruptcy Code (IBC). In 3QFY24, average time taken to resolve cases for financial creditors hit a record high of 686 days, reflecting a continuous upward trend over past three years across all segments.

Neverless, despite se challenges, IBC has maintained highest recovery rate among its peer mechanisms, such as SARFAESI Act, Debt Recovery Tribunals, and Lok alats, in FY23. This underscores effectiveness of IBC in financial recovery compared to or avenues, despite ongoing efforts to streamline resolution timelines.