Lenders took 285 companies to bankruptcy tribunals in the six months to September after a year-long moratorium on bankruptcy action was lifted in March, official data showed.
In the September quarter alone, 144 companies were taken to National Company Law Tribunal (NCLT) benches for defaults, data from the Insolvency and Bankruptcy Board of India (IBBI) showed, taking the total number of companies so far admitted for bankruptcy proceedings to 4,708.
The number of admissions in the first half of the fiscal year is roughly half the total number of cases that ended up in tribunals in FY21 when bankruptcy action was suspended for fresh defaults, and cases could be initiated only for defaults in the pre-pandemic period.
The fact that there is no spike in admissions for two quarters after the suspension on bankruptcy action for defaults during the pandemic has been lifted in March this year offers relief to policymakers.
However, given the lag in cases getting admitted to tribunals, the actual number of distressed companies against which creditors may have moved tribunals could be much more.
Also, experts said that lenders may be reluctant to initiate bankruptcy proceedings against defaulters when they are uncertain about being able to attract new investors.
In its quarterly update, the insolvency and bankruptcy board said that developing a market for stressed assets is important for an emerging economy like India, where the corporate bond market lacks depth and liquidity, and market participants are heavily reliant on loans from banks.
“With banks reeling under mounting non-performing assets (NPAs), the need of the hour is to have a well-developed distressed assets market to offload these NPAs effectively,” IBBI said.
One reason that prompts lenders to have second thoughts about initiating bankruptcy action is the hefty haircuts many creditors have taken as part of bankruptcy resolution, a concern which a parliamentary standing committee also voiced in August.
Also, data shows that companies with more physical assets on their books have managed to attract bids from investors as it gives them confidence to recover some of their investments even if the corporate turnaround attempt after acquisition does not go through.
IBBI data showed that the largest class of people that initiated bankruptcy cases till the end of September is operational creditors such as vendors.
Operational creditors initiated 2,397 cases, financial creditors initiated 2,019 cases, and corporate debtors referred 291 cases.
In 14% of all the closed cases so far, resolution plans have been cleared, and 46% of cases got liquidation orders. Of all the cases admitted so far, 40% are in the manufacturing sector, and 20% are in the real estate industry.
Source: Mint