While the total number of fresh cases being admitted under the Insolvency and Bankruptcy Code is declining, the number of ongoing cases has been inching up.
A total of 238 cases were admitted to the insolvency process in 1QFY24 (347 in 4QFY23), with the yearly run-rate well below the 2,000 cases admitted in FY2020.
“Corporate India continues to be in a healthy shape, with no new signs of stress as most corporates have gone through a fair amount of deleveraging. As a result, the direction of cases and outstanding claims will likely stay low as legacy stress gets resolved. On the other hand, we have not seen a large capex cycle or asset price inflation, either of which could pose a threat in the near term to the asset quality of banks,” the Kotak report said. Corporate India is likely to have a cautious approach toward taking debt and would prefer to have a strong focus on cash flows over growth.
About 45% of all closed cases till date concluded via liquidation, while only 15% cases were resolved, with an average haircut of 68% on admitted claims. The time taken for resolution is still high, but it is reducing from peak levels seen in 2QFY21, according to a Kotak Institutional Equities report.
Number of ongoing cases rising
The total number of ongoing cases has been inching up gradually and stood at 2,000 as of June 2023. The IBC is gaining prominence as operational creditors lead new case admissions; 50% cases were initiated by operational creditors and 45% by financial creditors. Of the 4,700 cases that were closed until 1QFY24, only 15% were resolved, while 45% faced liquidation. About 65% of the ongoing cases have crossed 270 days. Out of the total admitted cases until 1QFY24, 39% were from the manufacturing space, 21% from real estate, 11% from construction and 10% from retail/ wholesale trade.
Haircut continues to be high
The total amount of debt resolved through the IBC stands at Rs 9.2 lakh crore. Resolutions have slowed down, with 1QFY24 seeing a resolution of Rs 23,000 crore of debt, resulting in realisation by financial creditors of Rs 6800 crore (29%). Based on available data for all cases resolved, financial creditors have faced a haircut of ~68% on admitted claims. The amount yielded on resolution as a percentage of the liquidation value is high (167%). “The overall haircut scenario has improved, but it is not very encouraging. As we work through some of the weaker assets where there are incomplete projects or sectors with very poor demand from buyers, the realisation values are relatively poorer,” the report said.
Closure by liquidation remains dominant
Liquidation (accounting for 45% of all closed cases) remains the most common path of closure for cases under the insolvency resolution process. As of 1QFY24, about 65% of ongoing cases have passed 270 days since admission, with another 10% crossing 180 days. Hence, the number of cases facing liquidation is likely to stay high.
