Analyzing and Gaining Insight in IBC’s 3 Years Journey By FCS Shweta Gupta

When the Insolvency and Bankruptcy Code, 2016 (IBC) was implemented in August 2016, it brought great cheer in the Indian market and was hailed by all stakeholders and industry experts as “The Act”. 

It was believed that IBC is a comprehensive, consolidated and single law that lay down a robust framework for Insolvency and Bankruptcy, would resolve cases of the bad loan in the specified time frame. It was seen as an effective tool that would help in the quick recovery of billions of dollars of bad loans from distressed and defunct firms.

Now that IBC is a little over 3 years old it is time to scrutinize and investigate a little to find out if it has performed the way as envisioned. An in-depth analysis of the Insolvency and Bankruptcy Board of India (IBBI) data, which was processed by EY India, through 7 charts tries to give a detailed understanding of how the system has progressed.

#Chart 1.


Source: IBBI, EY India, Business Standard

This chart clearly indicates that the amount recovered by financial creditors has varied, and they're certain is no indication of clear improvement. On the contrary, if we look at the recovery rate in the quarter ending December 2019, it was a meagre 12 per cent, which obviously is the lowest in the last two years.

#Chart 2.

Source: IBBI, EY India, Business Standard

Another important factor that came to light by the data processed by EY India, and as depicted in Chart number 2, is that big-ticket recovery cases, in which huge amounts of claims are staked by financial creditors, take longer resolution time.

#Chart 3.



Source: IBBI, EY India, Business Standard

Chart 3 brings to the fore the average recovery rate, which rises with time, but only till the specified upper limit of 330 days. Henceforth, there is no clarity that beyond the stipulated period of 330 days how fast or efficiently the cases get resolved, yet, one clear indication is that the cases with the higher claims get most delayed.

#Chart 4.

Source: IBBI, EY India, Business Standard

Chart 4 unquestionably depicts that owing to big-ticket cases being resolved in a longer period, the average time taken for resolution or liquidation is gradually going up.

#Chart 5.

Source: IBBI, EY India, Business Standard

The data in Chart 5 interestingly highlights a very crucial aspect that it is advisable to initiate and admit a company in IBC while it is still in operation, as their recovery rate is much higher compared to the defunct companies. Statistics of the data shows that 1/3^rd of the companies which were not able to reach a resolution was already defunct.

#Chart 6.

Source: IBBI, EY India, Business Standard

Chart 6 points out that of all the manufacturing companies that went to the National Company Law Tribunal (NCLT), the maximum number of resolutions were witnessed in chemicals and metal firms. In contrast to this, the labour-intensive or employment friendly companies like leather and textile mostly get liquidated.

#Chart 7.

Source: IBBI, EY India, Business Standard

If we talk about which services go for an appeal or review the most, then Chart 7 gives a clear indication that the real estate and construction sector have higher numbers than any other sector. On the other hand, power and hospitality sector companies are more likely to see the highest percentage of resolution.

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