NEW DELHI : Manufacturing, construction and real estate companies together accounted for seven in ten companies that ended up in bankruptcy courts, official data showed, indicating weak spots in the economy. According to figures from the Insolvency and Bankruptcy Board of India (IBBI), 71% of the more than 4,500 companies going to bankruptcy courts at the end of June belonged to these three sectors, with commerce, transport and hotels making up the remainder. .
Manufacturing, construction and real estate also accounted for 68% of the 1,349 companies ordered liquidation. And 73% of the 396 companies that succeeded in assembling stimulus packages under the Insolvency and Bankruptcy Code (IBC) were from these sectors.
The share of individual sectors among all companies that end up in bankruptcy courts has not seen any major change during the April-June period of this year, the first quarter after India lifted the suspension of ‘one year of the Insolvency and Bankruptcy Code (IBC) at the end of March.
This also applies to sectors such as transport and hospitality, among the contact-intensive sectors that suffered the most during the pandemic. However, according to experts, given that there would be a lag between possible defaults and a bankruptcy action, the impact of the pandemic on these sectors could be accentuated in the data for the September quarter.
Experts said real estate insolvency increased as homebuyers and creditors dragged developers to bankruptcy court over delays that may have been made worse by the pandemic.
“Builders are also grappling with multiple challenges – the requirements of the Real Estate Regulatory Authority (RERA) and the impact of IBC and liquidity constraints, as they emerge from the glut of real estate market that started long before the covid-19 pandemic, “said Ashish Chhawchharia, partner and national restructuring advisor at Grant Thornton Bharat.
The manufacturing sector accounts for around 17% of gross value added (GVA) in the economy, while construction accounts for around 7%.
In the June quarter, new bankruptcy cases remained low at 126, suggesting that the policy measures introduced to avoid bankruptcies and the sluggish market for distressed assets prevented an increase in the number of new cases after the lifting. of the suspension from the IBC in March.
The total number of cases admitted by the National Company Law Tribunal (NCLT) to date has increased slightly from 4,415 at the end of March to 4,541 at the end of June, an increase of 3%. The results of the IBC bankruptcy resolution process have recently received special attention, with policymakers pointing to the high degree of haircuts taken by lenders in some cases.
The IBBI bankruptcy decision-maker asked for suggestions for further changes to the Code, including the introduction of a code of conduct for lenders taking over the business of a failing company. The regulator also proposed changes to the auction process and suggested that the number of revisions to the resolution plan request be capped at two. In August, the parliamentary standing finance committee headed by BJP chief Jayant Sinha called for a review of the Code.
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