Indicating further traction for asset resolution, India Ratings has said it is expecting that over Rs 4 trillion of bad loans will be resolved by the end of 2018. It stated that around 45% of total bad loans worth Rs 10.2 trillion standing in the books of the top 500 debt-heavy corporates are likely to be resolved by the end of 2018 under the Insolvency and Bankruptcy Code (IBC) Act, while the balance is to be resolved largely during 2019. Moreover, it highlighted that the success of the IBC 2016 lies in the substantial reduction of the overall resolution time, which is in turn critical for the development of debt capital markets in India.
The bad loans include total borrowings of entities within the top 500 borrower universe as on March 2017, with either a credit rating of ‘C’ or ‘D’. Both are non-investment category ratings. Besides, the total stressed debt resolved (including pre-National Company Law Tribunal restructuring or highest bidder identified under NCLT) is Rs 0.82 trillion. Lenders having exposure to such loans will take an average haircut of 43%, lower than the overall estimate of 59% on the entire bad debt portfolio.
The haircut is likely to be low as some of the resolved bad debt were large-sized assets in iron and steel, and a cement asset. The infrastructure (including power), and metals and mining sectors have the most concentrated stressed debt pending resolution, followed by real estate, telecom, and petrochemicals. The real estate sector may have a high requirement of debt refinancing to avoid falling into the stressed category.