A recent analysis by CareEdge Ratings has underscored a significant challenge within India's Corporate Insolvency Resolution Process (CIRP): persistent delays. The report indicates that a staggering three-fourths of all ongoing CIRPs have already surpassed the 270-day mark, highlighting systemic bottlenecks in the resolution framework.
Average Resolution Times Soar
The study, which leveraged data from the Insolvency and Bankruptcy Board of India, revealed that the average time taken for insolvency resolution has escalated to 757 days. Similarly, liquidation cases are averaging 540 days, with nearly 70% of these cases remaining pending for over two years. CareEdge Ratings attributes these prolonged timelines to a combination of ageing cases, complex litigation, and various procedural hurdles that collectively impede efficient recovery.
Recoveries See Sequential Improvement
Despite the prevailing delays, there has been a positive trend in recoveries under the Insolvency and Bankruptcy Code (IBC). The April-June quarter witnessed an improvement, with financial creditors recovering 28.6% of admitted claims. This marks an increase from the 22.8% recovery rate observed in the preceding January-March quarter.
During the April-June period, financial creditors realized ₹3,557 crore against admitted claims totaling ₹12,443 crore. On a cumulative basis, creditors have recovered ₹4.35 lakh crore, which represents 30.5% of the total admitted claims.
Resolution Outcomes Outperform Liquidation
CareEdge Ratings emphasized that while the overall realization percentage might appear modest, the outcomes under the resolution process are substantially better than asset liquidation values. For instance, recoveries in the June quarter stood at 136.7% of the liquidation value, and cumulative recoveries have been an impressive 166.6% of the liquidation value. This reaffirms the value-accretive nature of resolution-led outcomes compared to outright liquidation.
The ratings agency also noted that the actual realization percentage could be even higher. This is because resolutions involving older cases often include accrued interest and other receivables added to admitted claims, which can significantly inflate the total admitted amount beyond the principal outstanding and overdue amounts.
Key Sectors Affected
Data from the report indicates a high concentration of insolvency cases originating from the manufacturing, real estate, and construction sectors. This concentration is attributed to these sectors' inherent vulnerabilities, including higher exposure to leverage, greater cash flow volatility, significant project execution risks, and susceptibility to cyclical demand conditions.