Bankruptcy cases rise 25% in Q3; recovery lowest at 23.45%: Care Ratings

The cumulative recovery rate has been on a downtrend, decreasing from 43 percent in Q1FY20 and 32.9 percent in Q4FY22, according to an analysis of the latest numbers of insolvency board IBBI carried out by Care Ratings.(Representative image)

The number of insolvency cases increased 25 percent in the December 2022 quarter, while recovery of debt through the process remained the lowest at 23.45 percent during the period, an analysis showed.

While the number of insolvency petitions increased by a steep 25 percent, the overall recovery rate till the third quarter of FY23 was just 30.4 percent, implying a haircut of 69.6 percent. The cumulative recovery rate has been on a downtrend, decreasing from 43 percent in Q1FY20 and 32.9 percent in Q4FY22, according to an analysis of the latest numbers of insolvency board IBBI carried out by Care Ratings.

However, the Q3FY23 recovery was the lowest at 23.45 percent, it said.

Sanjay Agarwal, a senior director with the agency, said 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.

The number of cases admitted for insolvency process has increased each quarter since the launch of the Insolvency and Bankruptcy Code in 2016, highlighting the rising acceptance of IBC as an effective debt resolution mechanism.

The admission of cases has increased in Q3FY23 by around 25 per cent after reducing in the last few quarters of FY21-22, but despite the increase, the number of cases admitted to the insolvency process continues to be lower than the pre-pandemic quarters.

Close to 6,200 cases have been admitted till December 2022 and 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 Rs 8,30,842.9 crore from Rs 6,84,901.3 crore on-year and the liquidation value inched to Rs 1,43,701.6 crore from Rs 1,31,447.9 crore. Of the total claims, financial creditors could recover only 30.4 percent at Rs 2,52,602.5 crore, up from Rs 2,25,293.8 crore in the year ago.

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

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 percent have ended in resolution, while 32 percent are ongoing, which is down from 35 percent in March 2022.

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

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

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