In a research report, CARE Ratings said: "The IBC seems to be incentivising debtors to settle their defaults even before the cases are admitted under the code with over 27,500 applications for initiation of CIRPs (Corporate Insolvency Resolution Process) with an underlying default of Rs 9.74 lakh crore were withdrawn before their admission."

Another measure of the effectiveness of the code is the ratio of resolution to liquidation.

With several initiatives to improve outcomes, the ratio has improved from 0.21 in FY18 to 0.64 in Q3FY24, CARE Ratings said.

According to the report, the average time taken for resolution or liquidation continues to increase for operational creditors (OCs) and financial creditors (FCs) during the December quarter.

"Meanwhile, the overall recovery rate till Q3FY24 was 31.86 per cent implying a haircut of approximately 68 per cent. The cumulative recovery rate has been on a downtrend, decreasing from 43 per cent in Q1FY20 and 32.9 per cent in Q4FY22 as larger resolutions have already been executed and a significant number of liquidated cases were either BIFR (Board for Industrial and Financial Reconstruction) cases and/or defunct with high-resolution time," the credit rating agency said.

After slowing in the pandemic period of FY21 and FY22, the number of insolvency cases referred has increased by around 19 per cent y-o-y in Q2FY24. However, despite the increase, the number of cases admitted to the insolvency process continued to be lower compared to earlier quarters in FY20, the report notes.

According to CARE Ratings, the number of ongoing CIRPs has declined on a y-o-y as well as sequential basis indicating that cases have been disposed of at a faster pace compared to their admission.

Furthermore, manufacturing too accounts for the largest number of cases, albeit its share has steadily reduced.