IBC cases: Haircut rises to 88% in Q3

■ Over 3,300 insolvency cases admitted as of Dec.

Banks took a steep haircut of around 88 per cent for cases resolved in 3QFY20 under the Corporate Insolvency Resolution Processes (CIRPS).

Barring a few cases, almost all resolutions in 3QFY20 had a haircut of over 60 per cent. As per the latest data of the Insolvency and Bankruptcy Board of India (IBBI), a total of 3,312 cases have been admitted under the insolvency process as of 3QFY20. Out of this, 561 new cases were admitted in 2QFY20. Around 58 per cent of all closed cases (780 out of 1,351) till date were via liquidation while only 190 cases (14 per cent cases) were resolved with an average haircut of around 57 per cent on admitted claims till 3QFY20.

While the amount yielded on resolution as a percentage of liquidation value is high at 200 per cent, it has been declining. The haircut for cases resolved in 3QFY20, was quite high at 88 per cent. The average premium to liquidation value was 120 per cent for accounts resolved in 3QFY20. While some accounts have shown superior results, the overall haircut scenario is dismal.

The number of cases admitted for Corporate Insolvency Resolution Processes over the last 11 quarters has increased significantly, and has been generally increasing every quarter, with a major portion of these cases being admitted over the last seven quarters, highlighting the rising acceptance of

IBC as an effective debt resolution mechanism. However, most ended up in liquidation.

“Large number of liquidated cases and duration of resolution continue to remain primary concerns,” said MB Mahesh, analyst at Kotak Institutional Equities.

The number of cases admitted to NCLT in 3QFY20 was 561; second highest till date with 50 per cent from financial creditors. This was an important outcome as financial creditors still continue to use IBC as a framework of resolution despite the June 2019 circular on stressed assets resolution.

Of the 182 cases which were closed in 3QFY20, 30 cases were resolved while 134 cases faced liquidation. The average duration of resolution was more than 350 days for all resolved cases till 3QFY20. More than 30 per cent of cases have crossed 270 days. Out of the total registered cases till 3QFY20, 39 per cent were from the manufacturing space and 33 per cent from real estate, construction and trading sector.

At the initial stage, RBI had directed the initiation of resolution proceedings for 12 large accounts by banks. These 12 companies had outstanding claims of Rs 3.45 lakh crore compared to a liquidation value of Rs 73,220 crore. Resolution plans for seven companies have been approved, while liquidation orders were passed against two companies. In case of Amtek Auto, implementation of the resolution plan failed and hence the process has been restarted.