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MOSL: FINANCIALS | NCLT & Insolvency Day-Stressed assets outlook from India’s key ARCs and resolution experts

FINANCIALS | NCLT & Insolvency Day: Stressed assets outlook from India’s key ARCs and resolution experts

 

We hosted the ‘Bankruptcy and Insolvency Day’ at our conference, wherein we invited top management of leading ARCs, a partner from one of the big four consulting firms and a resolution expert to share their experience and outlook on the overall stressed assets. Key takeaways:

 Stressed assets have ballooned; distressed asset funds to become active as IBC stabilizes

Policy hurdles (which led to value destruction), commodity super-cycle (which led to overcapacity) and the overleveraged balance sheets were the key reasons behind the ballooning of stressed assets to INR12.3t (13.8% of loans) as of FY18, with the metals, power and construction sectors contributing the bulk of it. Prior to the Insolvency and Bankruptcy Code (IBC), the Government of India (GoI) came up with various legislations to deal with distressed assets, but the results were not convincing (for instance, CDR succeeded initially in 2004 because the commodity cycle had turned positive; however, post 2010, the results were far from encouraging). The fact that the government and the regulator are on the same page is encouraging and can make the IBC a success story. Further, as the IBC stabilizes, stressed asset funds (including overseas funds) are likely to become more active in the distressed asset space.