Stressed assets’ resolution under the Insolvency and Bankruptcy Code (IBC) is expected to result in moderation of non-performing assets of banks as they can recover more than 50 per cent of their dues from the first 12 large cases, Credit Suisse said in a report on Wednesday. With a total of 700 cases already admitted for Corporate insolvency resolution process (CIRP) under the IBC, the firm expects that another 70 large companies may be taken to the IBC as a result of the Reserve Bank of India’s February circular on resolution. Increasing referrals to the National Company Law Tribunals is also slowing down the process of admission of cases and their resolution, it said.
“IBC1 (12 large cases) driven resolution will aid NPA moderation. RBI’s first list of bankruptcy cases (IBC1) accounts for (over) 2.5 per cent of system loans and 10-20 per cent of banks’ reported GNPAs. Two of these have seen resolution in 1Q (April-June) and as rest come through in FY19, reported NPA levels are likely to moderate. With majority of these being steel companies, the haircut on this set is estimated to be contained (less than) 50 per cent,” Credit Suisse said in the report. These 12 large cases account for total unpaid loans, or NPAs of Rs 3.23 lakh crore. The government expects banks to recover a total of Rs 1 lakh crore in these cases.
In the first successful case, Bamnipal Steel Ltd (BNPL), a wholly-owned subsidiary of Tata Steel, last month acquired 72.65 per cent stake in Bhushan Steel Ltd (BSL) for around Rs 36,400 crore. The total claims of financial creditors were Rs 56,018 crore and that of operational creditors of Rs 843 crore while the liquidation value for Bhushan Steel was Rs 14,541 crore. In the second case, Vedanta Ltd acquired a majority stake in Electrosteel Steels Ltd for Rs 5,320 crore.
Analysis of CIRP details reveal the number of companies going for liquidation under the IBC has been nearly three times of those for which resolution plans were approved. As per data from the Insolvency and Bankruptcy Board of India (IBBI), of the 701 corporates admitted into resolution process, 67 were closed on appeal or review, 22 resulted in resolution, while 87 yielded liquidations.
Out of the 87 cases that went in for liquidation, in 76 cases, resolution value was less than the liquidation value of the companies, while in 11 cases it was more than the liquidation value, the IBBI data shows. As more cases get referred to various NCLT benches, the resolution process is expected to slow down.