IBC Icra says lenders took 72 pc haircut in Q2 breach of timelines resulting in more liquidations

Mumbai, Nov 13 (PTI) Banks have had to take a haircut of over two-thirds in the corporate insolvency cases being resolved through the bankruptcy courts, a report said on Wednesday.
     In over 71 per cent of the cases, the 270-day timeline is getting exceeded, the report by rating agency Icra said, adding that this is resulting in a higher number of liquidation orders as the elongated process erodes value.
     "'Lenders continue to face steep haircuts or reduction in loan amounts of nearly 72 per cent in Q2 FY2025 as the overall resolution process continues to face material delays emerging from litigations from either promoters or dissenting creditors," the agency's group head for structured finance ratings Abhishek Dafria said.
     He added that 71 per cent of the ongoing corporate insolvency resolution processes (CIRPs) had exceeded 270 days, post-admission by the NCLT.
     "The elongated process results in further erosion of the corporate debtor, which has also resulted in a high share (44 per cent) of CIRPs being closed through liquidation orders," he said.
     The Insolvency and Bankruptcy Code, which was introduced in 2016, suggests that a case be solved in 270 days and one of the objectives for introducing the new bankruptcy laws was to extract the best value for lenders by resolving an asset rather than taking it to liquidation.
     The domestic rating agency said the number of overall corporate debtors since the introduction of IBC has now crossed 8,000, of which 6,039 CIRPs have been resolved either through a successful resolution plan or withdrawal or liquidation.
     A total of 1,068 CIRPs have seen successful closure through a resolution plan, thereby allowing the corporate debtor to continue as a going concern, it said, adding that lenders have realized over Rs 3.5 lakh through these.
     Dafria said there has been a "meaningful change" in borrower behaviour as the code is acting as a deterrent for promoters to lose control of entities.
     The agency said large accounts of over Rs 1,000 crore have a 15 per cent share in resolved cases but have an 89 per cent share in the recovery. Therefore, any improvement in recovery in these large accounts would drive the overall recovery, it added.
     The dip in the overall realised value from CIRPs yielding a resolution plan to 31 per cent till September 2024 can be attributed to a marginal decline in recovery in these large accounts, the agency said.

(This story has not been edited by THE WEEK and is auto-generated from PTI)