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What does the IBC data tell us about the state of Indian economy?

Of the total 12 cases that were directed to the Insolvency and Bankruptcy Court by the Reserve Bank of India (RBI) in 2017, a resolution has been arrived in six cases while liquidation orders were passed against two companies.

May 27, 2020 / 12:12 PM IST

Even as the economy is sinking into a deeper recession, data shows that the number of companies getting dragged to Insolvency and Bankruptcy Code (IBC) proceedings has been going up significantly over the last few years. This scenario could worsen in the context of COVID-19 onslaught.

“The number of cases admitted for Corporate Insolvency Resolution Processes (CIRPs) over the last 11 quarters has increased significantly, and has been generally increasing every quarter, with a major portion of these cases being admitted over the last eight quarters,” a report by CARE rating which analysed the IBC data showed.

Also, most of the cases admitted to the IBC have been resolved through liquidation, not resolution.

So far, 3,774 companies have been admitted to IBC proceedings on a cumulative basis. Of this, 24 percent cases are closed by liquidation while only six percent cases have been closed through resolution. The manufacturing sector accounts for the highest share at 40 percent of the overall cases, followed by the real estate (20 percent), construction (11 percent) and trading sectors (10 percent). In Q4, the sectors have remained constant compared with the previous quarter.