“The rate of recovery is contingent on several factors, including the overall macroeconomic environment, perceived growth prospects of the entity and its sector, and the extent of erosion in the intrinsic value of the entity. As a broad-based recovery gains traction, these factors are likely to turn favourable for financial resolution,” the pre-budget survey said.
The survey quoted Reserve Bank of India (RBI) data which shows that the total amount recovered by banks under IBC at the end of the last fiscal year ending March 2022, at Rs 47,421 crore was the highest compared to other channels such as Lok Adalat’s, SARFAESI Act and Debt Recovery Tribunals (DRTs).
The survey said that a comparison of realised value in the resolution of stressed assets with admitted claims on those assets, may not be a reasonable indicator of the effectiveness of the resolution process since significant value destruction may have already happened in these assets.
“One of the far-reaching spill-over effects of the code has been the behavioural change effectuated by it among debtors. The fear of losing control over the corporate debtor (CD) upon initiation of CIRP (corporate insolvency resolution process) has nudged thousands of debtors to settle their dues even before the initiation of insolvency proceedings. Until September 30 2022, 23,417 applications for initiation of CIRPs of CDs having underlying default of Rs 7.3 lakh crore were disposed of before their admission into CIRP,” the survey said.
In terms of value realisation for CIRPs, the resolution plans realised Rs 2.4 lakh crore, which is 177.6% of the liquidation value and 841% of the fair value of the 553 CDs rescued. Moreover, realisation by financial creditors under resolution plans in comparison to liquidation value was 201%, while the realisation by them was 33% of their claims, the survey said.
Further, more than 76% of the CIRPs ending in liquidation (1349 out of 1774 for which data are available) were earlier with the Board for Industrial and Financial Reconstruction (BIFR) or are defunct. “The economic value of most of the corporate debtors that ended in liquidation had almost completely eroded even before they were admitted into CIRP. 429 CDs have been completely liquidated. The code has facilitated the realisation of 92% of the value through the liquidation of these companies,” the survey said.
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