The proposed reforms in the Insolvency and Bankruptcy Code(IBC) will likely help enhance efficiency, improve resolution value and reduce resolution timelines, thereby leading to higher stressed asset recoveries in the medium to long term, says India Ratings and Research.
The ratings agency said that while IBC has had a profound positive impact on the country’s insolvency landscape, the resolution process has seen a divergence from its legislative intent of a faster and high recovery of stressed assets, because of litigations at various stages and judicial delays.
An analysis of the data for July-September from the Insolvency and Bankruptcy Board of India showed that the real estate sector ranks second in terms of total cases admitted with a 21% share.
But the corporate insolvency resolution process has yielded resolution in only 15% through resolution plans, while 18% cases are undergoing liquidation.
“These figures underscore IBC’s limited effectiveness in addressing the complexities specific to the real estate sector. Along with this, extended timelines and limited bandwidth of National Company Law Tribunal benches add to the delays,” the company said in a press release.
The Amitabh Kant Committee on legacy stalled real estate projects was established and published its recommendations in July 2023. The committee has recommended that IBC be used as the last resort as it needs to be reformed to better accommodate the complexities of real estate sector. Following this, board of the Insolvency and Bankruptcy Board of India has proposed some changes to IBC with respect to the resolution of stalled real estate projects.
“These measures are poised to significantly enhance efficiency, elevate resolution value and reduce timelines in addressing real estate NPAs”, says Jatin Nanaware, senior director, India Ratings and Research.