For creditors moving bankruptcy courts, 2023 was a great year

Creditors invoking IBC have realized about ₹67,000 crore in calendar year 2023, a 221% jump from the year before. In 2022, creditors had realized about ₹20,860 crore by initiating bankruptcy action under IBC, a senior government official said. The recovery includes both repayment of debt after turning around a distressed company as well as liquidation proceeds.

The sharp improvement in realizations comes from a jump in the number of cases resolved by National Company Law Tribunal (NCLT) benches under IBC in 2023. In the just-concluded calendar year, creditors managed to pull off debt resolution in 273 cases, the highest in a year since the debut of IBC in 2016, against 160 in 2022, the official cited above said on the condition of anonymity. This shows a robust upward trajectory in the effectiveness of the bankruptcy code, the official said.

So far, NCLT benches have approved debt resolution in 887 cases under the bankruptcy code, unlocking over ₹3.19 trillion in realizable value. While the average realization against claims of creditors admitted by the administrator of the company hired by lenders is at 32%, the realization is about 168% of the liquidation value, or the amount that can be realized by selling the assets, a more realistic, market-linked and appropriate estimate of the asset value.

Besides, the share of large borrowers in the gross non-performing assets (NPAs) in the banking sector has been steadily declining since IBC came into force in 2016, indicating that large corporations are turning more disciplined in repaying dues, said the official.

The figures point to improving effectiveness in dealing with industrial sickness, even as policymakers expect the improved balance sheets of both lenders and corporations to trigger a fresh investment cycle. IBC has been a key reform rolled out by the Narendra Modi administration, replacing the earlier Sick Industrial Companies Act, under which resolution used to take years. IBC has also led to a major improvement in credit culture, leading to behavioural change of borrowers, the official said. The share of large borrowers—those with more than ₹5 crore in borrowings—in gross NPAs in the banking sector has declined from 72.8% in March 2015 to 51.8% in September 2023, the official said.

Till October 2023, over 27,500 cases have been settled between lenders and corporate borrowers, covering underlying payment default of ₹9.74 trillion, the official said. Experts pointed out that potential loss of control of the business is a major deterrent under IBC, leading to better credit discipline.

According to a Reserve Bank of India report on trend and progress of banking in the country for FY23 released on 27 December, the share of large borrowal accounts in total advances declined to 46.4% at end-March 2023 from 47.8% a year ago. Their contribution to total NPAs also fell during the year to 53.9% from 64% a year ago. The report also pointed out that lenders recovered ₹53,968 crore in FY23 under IBC, accounting for over 40% of recoveries made by them through all channels including debt recovery tribunals, recovery under the Sarfaesi Act and the Lok Adalat, an alternative dispute resolution mechanism.

Emails sent to the Insolvency and Bankruptcy Board of India, a spokesperson for the ministry of corporate affairs and NCLT on Thursday seeking comments for the story remained unanswered till press time.