IBC Amendment Promises Paradigm Shift In Real Estate NPA Dynamics, Ind-Ra Says

India Ratings and Research (Ind-Ra) said the amendment in India’s Insolvency & Bankruptcy Code (IBC) promises a paradigm shift in the real estate non-performing asset (NPA) dynamics.

The IBC has had a profound positive impact on India’s insolvency landscape, but the resolution process has seen a divergence from its legislative intent of a faster and high recovery of stressed assets because of litigations at various stages and judicial delays, Ind-Ra said in a statement.

Ind-Ra, a wholly owned subsidiary of Fitch Group, said it observed an influx of security receipts backed by real estate NPAs over the past year. The IBC effectiveness has been limited in addressing the complexities specific to the real estate sector, such as project-specific insolvency, striking a balance among the rights of various stakeholders, and extended timelines, it added.

The Insolvency and Bankruptcy Board of India (IBBI) data on real estate cases emphasize the low success rate of resolution under IBC and the post-resolution dilemma faced by resolution applicants due to uncertainties of outstanding dues and past claims, Ind-Ra said.

Ind-Ra said 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.

“These measures are poised to significantly enhance efficiency, elevate resolution value and reduce timelines in addressing real estate NPAs,” said Jatin Nanaware, senior director at Ind-Ra.

Ind-Ra said it expects these reforms to enhance efficiency, improve resolution value, and reduce resolution timelines, ultimately impacting the recovery ratings in the medium to long term.

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