The average haircut that lenders take under the Insolvency and Bankruptcy Code (IBC) is at 51 per cent so far, and the process has emerged the better option in terms of resolution time and recovery rates.
However, the emerging concern is that the National Company Law Tribunals (NCLTs) are stretched for capacity with over 2,200 cases filed and there appears to be a logjam at the tribunals, according to a report by Credit Suisse.
The IBC 2016 consolidated existing bankruptcy law frameworks into a single insolvency law.
Banks, through this process, recovered Rs. 55,000 crore last year at an average 50 per cent haircut. The first quarter pick-up in recoveries was also solely on account of IBC-led resolutions.
IBC’s timelines are significantly superior to other court-driven processes such as the Debt Recovery Tribunal and the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act (SARFAESI Act), where the recovery rate averages 15 per cent. Also, debt restructuring is faltering.
Distress funds now prefer the IBC route for resolution, it added.
NCLT has admitted claims worth Rs. 57,505 crore from Bhushan Steel, while the amount recovered stood at Rs. 36,771 crore. About Rs. 13,958-crore claim of Electrosteel Steels was admitted, while the recovery was Rs. 5,320 crore; and in Amtek Auto, of the Rs. 12,603-crore claim admitted, the recovery was Rs. 3,225 crore.
Corporate stress
The aggregate corporate profitability growth remained strong (EBITDA+21 per cent y-o-y) in the first quarter and interest cover rose to 2.6 times. However, the proportion of debt with companies with interest cover (IC) less than one remains high at 43 per cent, and the proportion of chronically-stressed companies remains stable at about 35 per cent, the report said.
This is because weaker companies have continued to see a drop in profitability. While stress in the steel sector continued to moderate, that of telecom rose, it added.
Bharti Airtel’s outstanding interest in the first quarter stood at Rs. 2,549.8 crore on FY18 gross borrowings of Rs. 1,11,500 crore, while that of Idea Cellular was Rs. 1,526 crore (borrowings of Rs. 58,800 crore in FY18) and Reliance Communications’ was Rs. 50 crore on FY18 gross borrowings of Rs. 45,400 crore.
The Tribunals are stretched for capacity with over 2,200 cases filed, there appears to be a logjam developing
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