Union Budget 2024 | Defaults worth Rs 10.2 lakh cr settled at pre-admission of insolvency cases since 2016: Economic Survey

'Change in debtor behaviour has been a big boon for banks and other lending institutions,' the survey document stated.

New Delhi: Defaults worth Rs 10.2 lakh crore have been settled at the stage of pre-admission of insolvency cases since the inception of IBC in 2016, and more than one-fifth of the companies undergoing resolution process are from the real estate space, the Economic Survey said on Monday.

Also, in the past six years since FY18, the IBC (Insolvency & Bankruptcy Code) has enabled over Rs 3 lakh crore recovery for banks, which was much more than what the lenders had recovered through previous mechanisms of Lok Adalats, DRTs, and the SARFAESI Act, it said.

Since the implementation of IBC in 2016, a total of 31,394 corporate debtors cases "involving a value of Rs 13.9 lakh crore have been disposed of (including pre-admission case disposals) as of March 2024", said the Survey tabled in Parliament by Finance Minister Nirmala Sitharaman.

The loss of control immediately after the beginning of the resolution process has led debtors settle with creditors as soon as the applications are filed with the National Company Law Tribunal (NCLT).

"A singularly notable fact is that Rs 10.2 lakh crore of underlying defaults were addressed at the pre-admission stage. This change in debtor behaviour has been a big boon for banks and other lending institutions," it said, adding the government has "taken several measures to improve the insolvency ecosystem".

The IBC has created an "optimal incentive-disincentive mix" to facilitate above-board and transparent dealings in creditor-debtor relations, it said.

As of March 2024, over 1,500 real estate companies were admitted to the insolvency resolution process under the IBC, accounting for a 21 per cent of total admissions, said the Economic Survey.

"One in four cases settled after admission was also from this sector. Of the 891 corporate debtors resolved, 133 were real estate companies, forming 15 per cent of the companies resolved," it said.

As of March 2024, NCLT has facilitated the closure of 4,131 corporate insolvency resolution processes (CIRP).

The Survey said: "3,171 corporate debtors have been rescued, of which 947 cases have been resolved through approved resolution plans, which brought in a realisable value of Rs 3.36 lakh crore." "In the resolved cases, the creditors recovered approximately 32 per cent of their claims," it added.

This amounted to a recovery of 85 per cent of the fair value and 162 per cent of the liquidation value of assets.

Now IBC is the dominant recovery route for SCBs (scheduled commercial banks), the Survey said.

Over 3,000 businesses have emerged out of the CIRP, with continued business operations extending the productive use of resources trapped due to financial distress in these corporate debtors.

The firms that went through the resolution process have witnessed a significant improvement in their performance in terms of increase in tangible assets and average capex in the post-resolution period compared to the pre-resolution period.

"The aggregate market valuation of resolved firms rose from around Rs 2 lakh crore in the pre-resolution phase to Rs 6 lakh crore in the post-resolution phase," it said.

Also, there is a substantial increase in total employment and around a 50 per cent increase in the average employee expenses in the resolved firms (listed) in the three years post-resolution.

"It is hard to find another policy measure that has created winners," the latest Economic Survey said.

As of March this year, 2,476 CIRPs ended in liquidation as they failed to find a buyer within the stipulated time frame.

A total of 586 firms were dissolved at the end of the liquidation process, releasing whatever resources were needed for alternate uses.

The Survey also said that the government has strengthened the NCLTs, regarding infrastructure, increasing its strength by filling vacancies and proposing an integrated IT platform.

Presently, the NCLT has 15 benches spread across the country with the Principal Bench at New Delhi.

"The IBC has established itself as an indispensable component of the asset recovery and reconstruction market. In the process, it has forever changed the credit market landscape in the country for good," the Survey said.

The IBC has provided an avenue for corporate debtors to resolve their debt and get an honourable exit from failed business endeavours.

It has promoted "ease of doing business and encouraging entrepreneurship", the Survey said, adding, "The Code has established itself as an effective solution for addressing banks' stress by aiding in significantly reducing GNPAs and helping rescue failing corporate debtors." PTI KRH HVA

Union Budget 2024 | Making a record for any Finance Minister, Nirmala Sitharaman will be presenting her 7th Union Budget on July 23, 2024 under the Modi 3.0 government. While inflation has burnt a hole in the pockets of 'aam janata', will this Budget spell relief for Indians? Track the latest coverage, live news, in-depth opinions, and analysis only on Deccan Herald. Also follow us on WhatsApp, LinkedIn, X, Facebook, YouTube, and Instagram.