Banking Sector Update : IBC - Corporate loans remain less worrisome by Kotak Institutional Equities
The latest report from the IBC continues to indicate that corporate loans remain in a favorable position. A total number of ~184 cases were admitted in 1QFY26, which is nearly the same quarterly run rate, as of FY2025. From a resolution perspective, we had a few large resolutions in the cement and power sectors. Overall, admissions to IBC continue to affirm the underlying trend that the corporate sector remains fairly comfortable from a leverage perspective.
Resolutions continue to progress, even under lagging timelines
On monitoring the ongoing CIRPs and those concluded, ~78% of ongoing CIRPs have crossed the 270-day threshold. Of the 205 CIRPs that went into closure this quarter, 64 have yielded resolution plans. The motive of the IBC to conclude processes at the earliest is yet to materialize, with the 1,258 CIRPs that yielded resolution plans taking 724 days on average (602 days, excluding delays attributable to the adjudicating authority). Realizations by claimants under resolution plans against the liquidation value are at 178%, while realizations against admitted claim value are at 34%. The resolution-to-liquidation ratio has reached an all-time high of 0.92, indicating that more cases are being resolved through resolution. Financial creditors continue to lead initiations by value and volume, while the share of CIRPs initiated by corporate debtors has been declining over time. Manufacturing continues to account for ~40% of plans admitted under the IBC. The recent additions to IBC cases are fairly smaller compared with the size of the lending book of banks. We see negligible stress arising from the corporate sector, considering the companies’ leverage positions and their ability to tide through a short-term stressful period.
Haircut on resolved cases remains high at about 70% of total claims
The total amount of debt resolved through the IBC stands at ~Rs12.2 tn for which creditors have realized Rs4 tn (higher than fair value and liquidation value). The overall haircut to the admitted value is at 67%. About Rs200 bn of debt was resolved in 1QFY26, resulting in realizations of ~Rs62 bn (~32%). However, the amount yielded on resolution, as a percentage of liquidation value, is high (~200%). The quarter saw a resolution of five large cases (admitted claims are more Rs10 bn) and the realization was marginally lower to overall trends seen in recent history at ~27%. As we work through some weaker assets, where there are incomplete projects or sectors with very poor demand from buyers, the realization values are relatively poorer.
Closure by liquidation remains dominant
Liquidation remains the most common path of closure for cases under the insolvency resolution process. As of June 2025, ~87% of ongoing cases have passed 270 days since admission, with another ~5% crossing 180 days. Hence, the number of cases facing liquidation is likely to stay high.
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