IBC – report card till Sep’19; NCLT referrals gather pace
Average recovery at 37% (46% for metal cases)
The Insolvency and Bankruptcy Code (IBC) was enacted to help banks pursue the recovery efforts in a time-bound manner and promote credit discipline in the banking industry. Since inception, the code has undergone various amendments aimed at improving the efficacy of the framework. While some metal cases have yielded healthy recoveries, a few accounts have been under continuous litigation, delaying the resolution process. The recent amendments cleared by the Parliament (deadline of 330 days, including litigation, resolution binding on government authorities), in unison with the RBI’s revised asset quality framework incentivizing banks to promptly refer stressed loans to NCLT, will further speed up the resolution process, in our view. In fact, they point toward the increasing importance of the IBC framework.
The recovery rate under the IBC for cases that have undergone resolution stands at ~37% (180% of the liquidation value). With PSU banks having high exposure toward NCLT cases and other set of accounts in which ICA is signed/likely to be signed, the asset quality recovery cycle for corporate banks is closely linked to the efficacy of the IBC framework. SBIN and ICICIBC remain our top picks.
2,542 cases referred to NCLT; only ~40% from financial creditors
As on Sep’19, a total of 2,542 cases have been admitted under the IBC, of which 1,045 cases are closed, while 1,497 cases are still outstanding till date. Of the cases submitted, a majority (~1,232 cases or 48%) were filed by the operational creditors, while 1,086 (~43%) were filed by the financial creditors. Around 224 cases (9%) have been filed by corporate debtors.
Only 15% cases resolved; activity has picked up though
As of Sep’19, 1,045 cases have been disposed, of which only 156 (15%) have been successfully resolved, while 587 (56%) have undergone liquidation. However, over Jul-Sep’19, the pace of resolution has picked up with 38 cases getting approved for resolution. Of the remaining cases, 186 (18%) are under appeal, while 116 (11%) have been withdrawn from the IBC process.
Manufacturing, real estate and construction form ~70% of admitted cases
Of the total cases admitted, ~41% are from the manufacturing sector, while real estate, renting and business activities constitute ~19%. Construction sector forms 11%, while trade sectors account for ~10%. Within manufacturing, the metal sector constitutes ~18%, while textiles, leather and apparel products form 16%.
Recovery rate stands at 37%, moderates to 28% excl. RBI list 1
* The recovery rate under IBC for cases that have undergone resolution stands at ~37% (180% of the liquidation value). The recovery rate for metal cases stands higher at ~46% (224% of the liquidation value), while that for non-metal cases stands much lower at ~28% (139% of the liquidation value).
* We further note that the recovery rate excluding RBI list-1 accounts moderates to 28%. For metal cases, the recovery rate declines far more sharply to ~11%. This is primarily due to higher recoveries in select list-1 accounts wherein recoveries stood as high as 64%. Till date, only seven cases have been resolved from list-1 (of 12 a/c referred by RBI) with recoveries in the range of 17%-64% (114%-387% as a percentage of liquidation value).
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