Insolvency cases rises 25% in Q3; recovery lowest: Care Ratings

The insolvency cases have increased by nearly 25 per cent in the December 2022 quarter, while recovery of debt through the process remained the lowest at 23.45 per cent in the period, according to a Care Ratings analysis.

In the December 2022 period, insolvency petitions increased by 25 per cent, while the overall recovery rate till the December quarter was just 30.4 per cent, implying a haircut of 69.6 per cent, according to an analysis of the latest numbers of insolvency board IBBI carried out by Care Ratings.

The recovery was at the lowest at 23.45 per cent December 2022 quarter, the analysis showed.

The cumulative recovery rate has been on a downtrend, decreasing from 43 per cent in Q1FY20 and 32.9 per cent in Q4FY22.

This steep fall has been due to the fact that most of the larger resolutions have already been executed and a significant number of liquidated cases are either BIFR (Board for Industrial and Financial Reconstruction) cases and/or defunct with high resolution time, coupled with lower recoverable values, said Sanjay Agarwal, a senior director with the agency.

The number of cases admitted for insolvency process has increased each quarter since the launch of the Insolvency and Bankruptcy Code in 2016.

The admission of cases has increased by around 25 per cent in Q3FY23 after reducing in the last few quarters of FY21-22.

Despite the increase, the number of cases admitted to the insolvency process continues to be lower than the pre-pandemic quarters.

Nearly 6,200 cases have been admitted till December 2022. Of them 2,692 have been filed by financial creditors and 3,133 by operational creditors, while the share of corporate debtors has continued to remain the smallest over the same period.

The value of the claims that the financial creditors made rose to ₹8,30,842.9 crore from ₹6,84,901.3 crore on-year and the liquidation value inched to ₹1,43,701.6 crore from ₹1,31,447.9 crore.

Of the total claims, financial creditors could recover only 30.4 per cent at ₹2,52,602.5 crore, up from ₹2,25,293.8 crore in the year ago.

From sectoral angle, the manufacturing sector accounts for the highest share at 39 per cent, followed by real estate (21 per cent), construction (11 per cent) and trading sectors (10 per cent).

On the other hand, the status of cases has largely remained constant compared to the previous periods. Of the total 6,199 cases admitted as of December 2022, only 10 per cent have ended in resolution, while 32 per cent are ongoing, which is down from 35 per cent in March 2022.

Of the total, as many as 1,901 cases or 31 per cent of the total have been liquidated. But as much as 76 per cent of liquidations are either BIFR cases and/or defunct and the recovery from them has been under 8 per cent of the outstanding debt.

Around 14 per cent or 894 cases have been closed on appeal/review/settled, while 13 per cent have been withdrawn under Section 12A. And as much as 54 per cent of the withdrawn cases are under ₹1 crore.

Of the 2,000 ongoing cases, there has been a delay of more than 270 days for 64 per cent cases in December 2022, an improvement of 9 percentage points from 73 per cent in December 2021.