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Loan resolution via IBC slowing down
Haircut via IBC resolution was at 90% in Q4FY22; Total amount of debt resolved through the IBC stood at Rs7.7 trn
Chennai: The resolution of loan dues through the Insolvency and Bankruptcy Code (IBC) has slowed down and the haircut in respect of cases resolved in 4QFY22 was about 90 per cent, said Kotak Securities.
In a report, Kotak Securities said the total amount of debt resolved through the IBC stands at about Rs 7.7 trillion, but resolutions have slowed in recent quarters. Based on available data for all cases resolved, financial creditors have faced a haircut of about 70 per cent on admitted claims. The haircut for cases resolved in 4QFY22 was high at about 90 per cent.
"The overall haircut scenario is not very encouraging. As we are working through some of the weaker assets where there are incomplete projects or sectors with very poor demand from buyers, the realisation values have declined," Kotak Securities said.
According to Kotak Securities, a total of 332 cases were admitted to the insolvency process in 1QFY23 (358 in 4QFY22) with yearly run-rate still below the about 2,000 cases admitted in FY2020. About 47 per cent of all closed cases to date concluded via liquidation while only about 14 per cent cases were resolved with an average haircut of about 70 per cent on admitted claims. Time taken to resolve is still high but is reducing from peak levels seen in 2QFY21, Kotak Securities said. The total number of ongoing cases has been inching up gradually and stood at about 2,000 as of June 2022.
IBC is gaining prominence as operational creditors lead new case admissions; about 50 per cent cases were initiated by operational creditors and about 40 per cent by financial creditors. Of the 3,600 cases that were closed until 1QFY23, only about 14 per cent were resolved while about 47 per cent faced liquidation. About 61 per cent of ongoing cases have crossed 270 days. However, the average resolution duration is about 550 days. Out of the total admitted cases until 1QFY23, 40 per cent were from the manufacturing space, 20 per cent from real estate and about 10 per cent each from construction and retail trade, the report notes.
