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MOSL: FINANCIALS-IBC – report card till Sep’19; NCLT referrals gather pace; Average recovery at 37% (46% for metal cases)

Financials: IBC – report card till Sep’19; NCLT referrals gather pace; Average recovery at 37% (46% for metal cases)

 

The Insolvency and Bankruptcy Code (IBC) was enacted to help banks pursue the recovery efforts in a time-bound manner and promote credit discipline in the banking industry. Since inception, the code has undergone various amendments aimed at improving the efficacy of the framework. While some metal cases have yielded healthy recoveries, a few accounts have been under continuous litigation, delaying the resolution process. The recent amendments cleared by the Parliament (deadline of 330 days, including litigation, resolution binding on government authorities), in unison with the RBI’s revised asset quality framework incentivizing banks to promptly refer stressed loans to NCLT, will further speed up the resolution process, in our view. In fact, they point toward the increasing importance of the IBC framework.

The recovery rate under the IBC for cases that have undergone resolution stands at ~37% (180% of the liquidation value). With PSU banks having high exposure toward NCLT cases and other set of accounts in which ICA is signed/likely to be signed, the asset quality recovery cycle for corporate banks is closely linked to the efficacy of the IBC framework. SBIN and ICICIBC remain our top picks.