A decline in the initiation of the corporate insolvency process last year is spurring most Big Four firms to rethink and rejig their insolvency verticals to focus on business beyond Insolvency and Bankruptcy Code (IBC), industry experts said.
Between the June and December quarter of FY25, the number of insolvency applications initiated by financial creditors went down from 150 to 84.
Those filed by operational creditors too also reduced from 79 to 38.
Consultants in Big Four firms point out that stressed assets have come down significantly.
According to data from the finance ministry, the banking sector's gross non-performing assets (GNPA) ratio declined to 2.6 per cent in September 2024, “Beyond IBC, we are focusing on turning around businesses. Now we are resolving things with stakeholders outside IBC. Many find IBC to be cumbersome and try other avenues,” a partner at one of the Big Four firms said.
Another partner at a Big Four firm said that when the IBC came, all the big firms put their best foot forward and received a lot of assistance from their overseas practice.
“As IBC evolves, teams are fine tuning their direction. It is a natural progression.”
He said that their firm is keeping their teams ready for whenever the next round of bad debts come.
“They are likely to play a pivotal role in the ecosystem.”
Typically, most firms divide their IBC verticals into sell and buy to deal with lenders and bidders to avoid a conflict of interest.
It is the sell side of business, experts said, which is seeing more of a diversion as initiation of insolvencies by lenders is lesser now.
“Some of the business on that side is low price and does not make economic sense as well,” a senior partner at another Big Four firm said.
While most Big Four firms were already dealing with stressed business, the introduction of IBC in 2016 had increased its activities.
“We set up our stress business long before IBC came.
"Many of our competitors came because of IBC. They have checked out,” the executive quoted above said.
IBC itself, experts say, has led to a change in the mindset of borrowers.
Consider the number till March 2024. 28,818 applications for initiation of insolvencies having underlying default worth ₹10.22 trillion were withdrawn before their admission.
Experts say that IBC has acted as a “stick” for defaulting promoters, who often settle their debts for the fear of losing their companies — as evident in the large number of applications being withdrawn before admission.
For the consulting firms, while most are keeping these divisions “lean and mean”, they feel that the skill set acquired by their executives through IBC will be valuable.Email queries sent to KPMG, PwC, EY, and Deloitte remained unanswered.
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