IBC: Recovery rate plunges after settlement of big cases

Absence of high value companies led to a poor recovery rate for lenders from cases under the Insolvency and Bankruptcy Code (IBC) during the December quarter of this fiscal. The recovery rate for Q3FY21 dipped to a low of 12.6 per cent, a steep fall from a high of 64.1 per cent reported in the March 2020 quarter.

In the past, the recovery rate in India used to be about 26 per cent. PostIBC implementation, the overall recovery rate till date has improved to 39.8 per cent.

Of the total claims which were settled via liquidation in Q3FY21, the realisable value was only Rs 20.3 crore, or around 21 per cent, of the total admitted claim amount of Rs 97.3 crore.

According to Sanjay Agarwal, senior director of Care Ratings, "The earlier quarters of the previous year saw resolution at a very high value for large steel accounts such as Essar Steel, Bhushan Steel, JP Infratech. Similarly, there was a high value cement account (Binani Cement) getting resolved last year. The recovery rate was high for these steel and cement companies. This year, some of the companies that have been admitted are weaker of the cases with legacy bad debt and so the recovery rate for lenders have fallen steeply."

Suspension of fresh bankruptcy proceedings due to the pandemic defaults also led to a a slowdown in the number of cases getting admitted for Corporate Insolvency Resolution Processes (CIRPs).

For instance, the number of cases admitted slowed down in ninemonth FY21 (283 cases) compared with 1,517 cases admitted in 9MFY20. The December-end quarter witnessed a drop of around 83 per cent compared with the previous year.