India's Insolvency Win: S&P Upgrades Ranking Amid Global Praise

According to S&P, the change follows an upward revision of its assessment of the what it termed "creditor-friendliness" of India's bankruptcy resolution framework to "medium from weak."

Contributing to this reassessment are a continuing record of successful creditor-led resolutions under the Insolvency and Bankruptcy Code (IBC) in India, it gave its rationale.

These resolutions demonstrate improved timeliness and recovery rates, the statement from S&P said.

"The IBC has strengthened credit discipline and tilted the resolution process in favor of creditors, in our view, with promoters potentially risking losing control of their business, unlike under earlier resolution regimes," S&P Global Ratings praised India.

Average recovery values have improved to more than 30 per cent, from 15-20 per cent under the previous bankruptcy regime.

"Secured creditors often recover several multiples that of unsecured creditors, and the IBC has reduced the average resolution time for bad loans to about two years, according to official data, down from six to eight years," the S&P statement read.

Some of these developments were partly reflected in S&P's previous assessments.

That said, India's resolution regime still lags those of more established Group A and some Group B jurisdictions, it noted.

Average recovery rates of about 30 per cent are comparatively low. Recoveries are higher for secured debt and in asset-intensive sectors such as steel and power.

"Secured and unsecured creditors voting together as a single class have the potential to weaken the position of secured creditors, particularly when unsecured debt is substantial. The effectiveness of safeguards, such as requiring recovery values to meet at least liquidation values and court oversight to ensure fair distribution, requires further observation," it observed.

Despite a reported time to resolution of about two years, unpredictability remains, it said.

As per definition, a jurisdiction ranking assessment is an indicator of the relative degree of protection that a country's insolvency laws and practices afford to creditors' interests, and of the predictability of those proceedings.

The assessment captures how insolvency proceedings and rule-of-law considerations in a given jurisdiction are likely to affect recovery prospects for creditors subject to insolvency proceedings after a default in that jurisdiction.

S&P classifies insolvency regimes into three groups, which in turn form the jurisdiction ranking assessments: Group A, Group B, and Group C.

- ANI