Mumbai: Though the performance of some sectors like steel has improved, corporate India is still reeling under high level of debt. Slow process of bankruptcy cases is also not allowing resolution of large debt cases, Credit Suisse (CS) said in a report on Wednesday.
“Corporate stress has not eased. Our quarterly health tracker indicates that overall corporate stress is yet to ease as share of debt with companies having interest cover of less than 1 increased to 41% vs 39% in the third uarter. While, the performance of the steel sector improved and aggregate interest cover rose to a three-year high, losses at power and telecom companies have been increasing,” Credit Suisse analyst Ashish Gupta said in a note.
According to Credit Suisse the national company law tribunal (NCLT) has admitted just 700 cases compared to about 2,200 cases that have been referred to it. “As a large number of cases continue to be referred to NCLT, the IBC process appears to be slowing. While the average time for admission to NCLT was 34 days in 2017, only half of the 28 companies in IBC2 have been admitted so far. Post RBI’s February circular, another 70 large companies may be taken to IBC, including 40 power projects,” CS said referring to the February which directed banks to dismantle restructuring and refer all cases to the NCLT.
Outcomes for the power sector are particularly uncertain CS said. “Uncertain outcomes for power assets. Recognition of power NPLs picked up in 4Q18, with 20-40% of power loans now recognised as NPA. However, as PLFs of many stressed plants, including that of Adani Power, drop to less than 10%, bidding interest and resolution for these remain uncertain. Banks, therefore, appear keen on keeping these assets out of NCLT, and therefore, even willing to fund the government’s proposed asset reconstruction company to house these,” CS said. The brokerage continues to prefer retail focussed banks like HDFC Bank and IndusInd Bank compared to corporate lenders like SBI and ICICI.