India Ratings and Research (Ind-Ra) believes around 45% of total bad loans of INR10.2 trillion pertaining to the top 500 debt heavy corporates is 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. Furthermore, the agency expects INR4.2 trillion of the total stressed debt to become sustainable as the outcome of the resolution process by the end of 2019.
The total stressed debt resolved (including pre-National Company Law Tribunal (NCLT) restructuring or highest bidder identified under NCLT) totalled to INR0.82 trillion with an average haircut of 43% lower than the overall estimate of 59% on the entire bad debt portfolio, given some of the resolved bad debt were large-sized assets in iron and steel, and a cement asset with lower haircut.
The agency expects approximately INR3.8 trillion of bad loans could potentially be resolved during the remainder 2018. Of this, about INR1.6 trillion debt will become sustainable if the resolution proceeds as per the defined timelines. During 2018-2019, Ind-Ra believes INR4.2 trillion of the total stressed debt will be turned good as an outcome of the resolution.
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 in the stressed category. While, few bad loans relating to metals and mining, cement, and auto and ancillary sectors have been successfully resolved so far.
