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 the approval of resolution plans in the third quarter of FY24, up from 17 per cent in the same period last year. This increase is attributed to various structural improvements implemented by the Insolvency and Bankruptcy Board of India (IBBI), including the addition of adjudicating members and efforts to streamline processes through ongoing engagement with stakeholders. However, questions linger about the long-term sustainability of these reforms.

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

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

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