The number of cases admitted through IBC in Q1FY23 is sharply higher than cases admitted in a year ago period, but it still remained below the annual run-rate of 2000 cases admitted in FY2020, Kotak Institutional Equities said in a report.
According to the report, the cases admitted through IBC in Q1FY23 is 332, compared to 139 cases admitted in the same period previous year.
IBC is gaining prominence as operational creditors lead new case admissions; 50 per cent cases were initiated by operational creditors and 40 per cent by financial creditors.
Of the 3,600 cases that were closed until 1QFY23, only 14 per cent were resolved while 47per cent faced liquidation. About 61 per cent of ongoing cases have crossed 270 days. Out of the total admitted cases until 1QFY23, 40 per cent were from the manufacturing space, 20 per cent from real estate and 10% each from construction and retail trade.
“The direction of cases is likely to undergo a change as systemic stress has largely dissipated. We have not seen a large capex cycle or asset price inflation in the recent past that could pose a threat in the near term to asset quality of banks. Rather, we expect a significant proportion of cases to be from borrowers in the mid and small enterprise segment, which was impacted by
Covid,” the report said.
The amount of debt resolved through the IBC stands at Rs 7.7 trilion, but resolutions have slowed in recent quarters. Based on available data for all cases resolved, financial creditors have faced a haircut of 70 per cent on admitted claims.
The amount yielded on resolution as a percentage of liquidation value is high (180 per cent). The haircut for cases resolved in 4QFY22 was high at 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 realization values have declined.