India’s Debt-Resolution Capacity Must Triple to Handle 1,000 Cases Annually

India's Debt-Resolution Capacity Must Triple to Handle 1,000 Cases Annually Image/Mint

VoM News Desk | October 1, 2023 | 04:29 PM IST | Breaking News | Follow on Google News

India’s Debt-Resolution Capacity Must Triple to Handle 1,000 Cases Annually

India’s debt-resolution capacity under the Insolvency and Bankruptcy Code (IBC) should be significantly expanded to effectively manage around 1,000 cases annually, according to a senior government official. Ministry of Corporate Affairs Secretary Manoj Govil made this assertion during the seventh foundation day of the Insolvency and Bankruptcy Board of India (IBBI), the regulatory authority responsible for framing rules under the IBC.

Growing Demand for Corporate Rescues

Govil noted that the pace of debt resolution under the IBC had been steadily increasing, with the number of corporate rescues expected to rise to 300 cases in the current financial year, up from approximately 180 cases in the previous year. However, he questioned whether this number was adequate, citing a study indicating that about 5,000 new bankruptcy cases are initiated annually.

India’s Debt-Resolution Capacity Must Triple to Handle 1,000 Cases Annually

Challenges in Debt Resolution

Initially, about 60% of new cases were withdrawn at the pre-admission stage. However, following the government’s decision to raise the payment default threshold for initiating bankruptcy action in 2020, larger cases have been coming in, leading to fewer withdrawals at an early stage. Govil estimated that even if one-third of new cases are withdrawn at the pre-admission stage, there will still be around 1,500 new cases requiring resolution each year.

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A Need for Capacity Expansion

Govil emphasized the necessity of increasing capacity to handle at least 1,000 cases annually to meet the demand effectively. He also highlighted the government’s efforts to fill vacant positions in the National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT) as one way to enhance capacity.

IBC’s Contribution to Economic Growth

IBBI Chairperson Ravi Mital acknowledged that around 300 cases are expected to be resolved under the IBC in the current financial year. He stressed that companies salvaged through the IBC process were thriving, making a substantial contribution to economic growth. As of August, 135 debt resolutions had been completed, and this number was expected to increase by the end of September, potentially reaching 300 resolutions by the year’s end.

The government’s priority is to improve debt resolution outcomes under the IBC, which would help clean up the balance sheets of companies and banks, ultimately facilitating a fresh investment cycle. Ongoing efforts to amend the IBC aim to enhance the system’s efficiency further.

VoM News Desk

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