The number of cases admitted for the Corporate Insolvency Resolution Process (CIRP) declined marginally in the second quarter of this fiscal to 232 cases as against 247 in Q1, according to the latest data from the Insolvency and Bankruptcy Board of India (IBBI).
Total ongoing insolvency cases reached 2,001 as of September, while the number of closed cases stood at 5,057. Of the total admitted cases as of the second quarter, 38% were from the manufacturing sectors, 21% from real estate, 12% from construction and 10% from retail and wholesale trade.
“Liquidation remains the most common path of closure for cases under the insolvency resolution process,” said Kotak Institutional Equities in a report oninsolvency resolution. “Of the nearly 5,000 cases that were closed until 2QFY24, only 15% were resolved, whereas 45% faced liquidation,” the report said.
Financial creditors have faced a haircut of 68% on admitted claims, added the report. The number of cases heading for liquidation is unlikely to come down in the near future.
“As of second quarter of FY24, nearly 67 % of ongoing cases have passed 270 days since admission, with another 13% crossing 180 days. Hence, the number of cases facing liquidation is likely to stay high,” the report said.
The number of cases admitted for the insolvency resolution process has seen a consistent rise since the launch of the Insolvency and Bankruptcy Code (IBC) in 2016, highlighting the rising acceptance of IBC as an effective debt resolution mechanism.
The number of cases admitted for the insolvency process increased to 1,261 in 2022-23 from 888 cases in the previous financial year. Financial creditors’ recovery from defaulters has risen to 36% of admitted claims in 2022-23 from 23% in the previous fiscal.
Corporate India has deleveraged balance sheets and has been cautious about taking debt as well. “We have not seen a large capex cycle backed by debt programs, which could pose a threat to the asset quality of banks,” said the report.
“Ability for any form of creditor to resolve through their defaults through IBC is a significant positive development, even if the time taken to resolve is slower than initially envisaged,” it added.