S&P Global Ratings has upgraded its jurisdiction ranking assessment for India’s insolvency regime, citing a more creditor-friendly framework under the Insolvency and Bankruptcy Code (IBC). The global rating agency moved India to Group B from Group C, reflecting an improvement in the country’s bankruptcy resolution system.
S&P cites stronger creditor-friendliness for upgrade
S&P said the IBC has improved credit discipline and tilted the resolution process in favour of creditors, with promoters potentially risking losing control of their business, unlike under earlier resolution regimes. It noted that promoters now risk losing control of their companies if they fail to resolve dues, a sharp departure from earlier mechanisms.
“The change follows an upward revision of our assessment of the creditor-friendliness of India’s bankruptcy resolution framework to medium from weak,” S&P said in its statement. The agency added that a steady record of creditor-led resolutions has contributed to the upgrade.
Creditor rights strengthened under IBC
“The change follows an upward revision of our assessment of the creditor-friendliness of India’s bankruptcy resolution framework to medium from weak,” the agency said in its statement. Contributing to this reassessment are a continuing record of successful creditor-led resolutions under IBC.
These resolutions demonstrate improved timeliness and recovery rates. Average recovery values have improved to more than 30%, from 15-20% under the previous bankruptcy regime. The IBC has reduced the average resolution time for bad loans to about two years, down from six to eight years. S&P, however, said India’s resolution regime still lags those of more established Group A and some Group B jurisdictions.
Recovery rates remain comparatively low
Average recovery rates of about 30% are comparatively low. It also flagged that despite a reported time to resolution of about two years, unpredictability remains with delays often stemming from initiating resolution and implementation plans, frequently due to legal challenges by other stakeholders.
However, recent Supreme Court rulings, including on the Bhushan Power and Steel Ltd acquisition, reinforce protection of creditor rights, even with these delays, S&P said. A jurisdiction ranking assessment is an indicator of the relative degree of protection that a country’s insolvency laws and practices afford to creditors’ interests, and of the predictability of those proceedings. S&P classifies insolvency regimes into three groups, which in turn form the jurisdiction ranking assessments– Group A, Group B, and Group C.
With the inputs from PTI