India Inc's debt repayment secure in FY24 amid declining insolvency cases: Kotak analysts

The average time taken for resolution has also been steadily inching up and stood at ~680 days as of March 2024, say Kotak analysts

The number of new cases admitted under the Insolvency and Bankruptcy Code (IBC) declined to 987 in the fiscal year 2023-24 (FY24), down from a peak of 1,990 cases in FY20, suggesting no new signs of stress in India Inc, according to analysts at Kotak Institutional Equities.

"In FY24, 987 cases entered the insolvency process, compared to 1,263 in FY23, with the annual rate well below the approximately 2,000 cases seen in FY20. This indicates that corporate India's debt repayment ability is stable," Kotak analysts noted.

Of the cases admitted by Q4FY24, 38 percent were from manufacturing, 21 percent from real estate, around 12 percent from construction, and about 10 percent from retail/wholesale trade.

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The total amount of debt resolved through IBC also has been broadly steady at Rs 10.5 lakh crore, with Q4FY24 seeing a resolution of Rs 48,000 crore of debt.  Based on available data for all cases resolved, financial creditors have faced a haircut of 68 percent on admitted claims, said Kotak analysts. When a bank takes a 'haircut', it means it accepts less than what was due in a particular loan account.

While analysts believe that the overall haircut scenario has improved but it is still 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," they underlined.

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Furthermore, the average time taken for resolution has also been steadily inching up and stood at 680 days as of March 2024. Of the 5,640 cases that were closed till Q4FY24, only 17 percent were resolved while 45 percent faced liquidation, added Kotak analysts. Liquidation is a process in which the company is brought to an end, wherein the assets and property of the company are redistributed to the creditors and owners.

"Liquidation remains the most common path of closure for cases under the insolvency resolution process. As of Q4FY24, 68 percent of ongoing cases have passed 270 days since admission, with another ~10 percent crossing 180 days. Hence, the number of cases facing liquidation is likely to stay high," the brokerage firm added.

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