Noida: Construction work underway at a residential site, in Noida, Friday, July 5, 2019.
Credit: PTI Photo
New Delhi:The proposed amendment in the Insolvency and Bankruptcy Code (IBC), that is likely to be introduced after the general elections, will bring a paradigm shift in real estate non-performing asset (NPA) dynamics, India Rating and Research said on Tuesday.
The Insolvency and Bankruptcy Board of India (IBBI) data on real estate cases emphasise the low success rate of resolution under IBC. The proposed reforms to IBC aim to bring about process simplification, project-specific resolution processes, seamless takeover by financial bidders, and a pro-homeowner’s perception of the IBC as a preferred route, the rating agency said in a note.
The agency’s analysis of the IBBI quarterly data from July-September 2023 quarter shows that the real estate sector ranks second in terms of total cases admitted with 21% share. However, the corporate insolvency resolution process has yielded resolution in only 15% via resolution plans, while 18% cases are undergoing liquidation. These figures underscore IBC’s limited effectiveness in addressing the complexities specific to the real estate sector. Along with this, extended timelines and limited bandwidth of National Company Law Tribunal benches add to the delays.
Low rate of resolution under IBC is primarily due to the uncertainty faced by resolution applicants (RAs) post acquisition of a corporate debtor through Corporate Insolvency Resolution Process (CIRP).
India Rating and Research (Ind-Ra) opined that the proposed reforms to IBC are likely to directly impact recovery ratings in the medium to long-term, specifically security receipts backed by real estate NPAs.
“A thorough evaluation of the impact will be feasible once these changes are implemented and their judicial interpretation is observed,” the rating agency said.
According to the rating agency, the proposed amendments are likely to enhance efficiency, improve resolution value, and reduce resolution timelines, ultimately impacting the recovery ratings in the medium to long term.
“These measures are poised to significantly enhance efficiency, elevate resolution value and reduce timelines in addressing real estate NPAs,” said Jatin Nanaware, Senior Director, Ind-Ra.