Indian insolvency regime shows improvement in time for recovery: Fitch

Fitch Ratings today said that there has been improvement in India's insolvency regime in respect of time taken to enforce security interest by the secured creditors through the use of debt recovery tribunal (DRT).

In a new report, India's Insolvency Regime: Recovery Time Falls but Room for Improvement, highlights that the average time taken by the tribunals to issue the recovery certificate has come down from seven years for applications filed in the mid-1990s to two to three years in recent times.

In the report, the agency studies the efficacy of different recovery forums such as - Board of Industrial and Financial Reconstruction (BIFR), DRT and Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act, 2002).

"Forums such as DRT and SARFAESI Act have resulted in recoveries in the range of 30 per cent-50 per cent within three to four years. While with BIFR - where 38 per cent of the references have been dismissed in the past, the time for dismissal of reference could be improved to allow creditors to explore other options for an early recovery," says Sandeep Singh, director, structured finance, Fitch.

The report brings out the key provisions of the different legal forums and the amendments to those statutes from time to time. The report examines the difficulties in implementing the provisions of the different legislations which increases the uncertainty with respect to amount and timing of recovery.

While the regulatory framework of India's insolvency regime has constantly evolved over a period of 25 years, concerns remain on consistent application of court precedents and lack of clarity on the seniority of statutory dues across different states. Clarity on the above issues will lead to an efficient and less litigious resolution process.