Financial creditors took lead in initiating insolvency proceedings in the fourth quarter.
With Indian banks reeling under rising piles of bad loans every year, the implementation of the Insolvency and Bankruptcy Code (IBC) was seen as an avenue for higher recoveries and quicker resolutions. However, as per the latest data, the trend does not suggest so.
In its report, the Insolvency and Bankruptcy Board of India (IBBI) said that 359 cases had been admitted for corporate insolvency, while only 14 got resolution plan approvals and 73 went into liquidation in the January-March quarter.
The process has seen more liquidations than resolutions since inception. So far, 378 cases went into liquidation and only 94 got resolution plans in place, out of the total 1858 cases that were admitted in December 2016.
"IBC has helped to a great extent but there have been significant delays from a timeline perspective and more cases have gone into liquidation than resolution which raises concerns that were these companies really worth of resolution or were these willful defaulters and are now looking at liquidation," said Vikram Babbar, Partner and Financial Services Lead, Forensic & Integrity Services, EY.
"It needs to be analyzed closely whether a company has been under genuine losses, has intrinsic value and can be turned around. A wilful default or fraudulent case should be treated separately," he added.
About 53 percent of the cases that were closed went into liquidation, and 13 percent ended with a resolution plan. However, 75 percent of the cases that went into liquidation were earlier with BIFR and/or defunct, and the economic value in most of these had already eroded before they were admitted, IBBI said.
It was also the first time that cases invoked by financial creditors (FCs) were higher than those by operational creditors (OCs). The cases invoked by FCs jumped to 172 from 98 and 84 in the previous two quarters while OCs initiated insolvency in 168 from 161 and 138 cases in the same period.
In the cases that were liquidated till March-end, FCs realised 43 percent of the claims in 300 days on an average and at a cost of 0.5 percent, the report said. IBBI Chairperson MS Sahoo said that this is higher than the previous regime where creditors recovered 25 percent in five years and at a cost of nine percent.
Out of the 12 large accounts initiated by banks, as directed by the Reserve Bank of India, resolution plans in six of these cases have been approved. Together, they had an outstanding claim of Rs 3.45 lakh crore.The number of voluntary liquidations also went up with 83 directors/partners offering Rs 287 crore of their paid-up capital and Rs 150 crore of assets in the January-March quarter. So far, the biggest reason noted for voluntary liquidations was a shutdown of business operations.