Sector Update |
Update | Financials
Sector
7 December 2017
Financials
Technology
Insolvency and Bankruptcy resolution – Speed set to accelerate
Sector-wise distribution of
combined list – by total
exposure
Although the Insolvency and Bankruptcy Code (IBC) was approved in May 2016, the
activity under this code has picked up significantly only from July 2017 after the Reserve
Bank of India (RBI) identified 12 large accounts forming 25% of the banking system’s
GNPAs for resolution under the IBC. With the resolution timeline on these cases coming
close, we met several bankers and relevant industry personnel to assess the progress and
understand the implications of this powerful law. While the recovery rate on the
announced resolution stands paltry (~90% haircut in some cases), the outlook for certain
metal and power assets is much more promising. The government and Insolvency and
Bankruptcy Board of India (IBBI) have amended the IBC and tightened the eligibility norms
in bidding for stressed assets. While these measures might lead to higher haircuts, we
believe that, over the longer term, it would prevent the re-entry of willful defaulters in the
system and promote transparency. According to our scenario analysis, resolution of NCLT
cases (RBI’s list 1 & 2) at 65% base case LGD should positively impact PSU banks’ FY19E
ABV by 6% to 26%, while private banks will see a modest ABV impact of 3% to 5%.
Auto Anc -- 6%
Textile -- 6%
Electronics --
12%
Metals --
43%
EPC -- 28%
Source: RBI, Company, MOSL
376 cases referred to NCLT; only one-third from financial creditors
A total of 376 cases have been referred to the NCLT over the first nine months of
CY17. A majority of these cases (i.e. 187) have been filed by the operational
creditors, 122 cases by the financial creditors and the remaining cases by the
corporate debtors. Resolution of these accounts is expected to be a major trigger
for corporate lenders. However, the beginning appears to be modest, with only 2
accounts taken up for resolution (at hefty haircuts), 7 accounts directed to undergo
liquidation, and another 14 witnessing further appeals.
More operational creditors
than financial creditors in the
cases referred
No. of Resolutions
Processes
Quarter
Total
Initiated by
*
**
#
FC OC
CD
Q4FY17 9
Q1FY18 31
7
59
21
35
37
125
RBI’s list 1 and 2 alone form ~45% of total GNPLs; of this, Metals, EPC and
Electronics account for ~82%
The RBI has directed banks to file 12 cases as part of its first list (of which 11 cases
were admitted), and has suggested for another 28 cases to be referred by end-
December if they are not resolved by other means. These are key accounts together
amounting to INR4t+ or ~45% of the total systemic GNPAs. We note that of this,
Metal, EPC and Electronics form nearly 43%, 28% and 12%, respectively, while
Textile and Power form 6% and 3%, respectively (refer exhibits 5 and 6 for details on
composition by major sectors).
Q2FY18 82 101
31
214
Till Date 122 167
87
376
Source: IBBI, Company, MOSL
* Financial Creditor
**
Operational Creditor
# Corporate Debtor
Many systemically important cases will get decided over next few months
While the resolution success through NCLT has been limited so far, the impending
decision on several steel assets – with many of them receiving active interest from
bidders – will make things interesting for corporate lenders. We expect resolution
process for these cases to get completed over the next few months, as the
resolution deadline draws close. Please refer exhibit 13 for admission dates.
Research Analyst: Nitin Aggarwal
(Nitin.Aggarwal@MotilalOswal.com); +91 22 3982 5540 |
Anirvan Sarkar
(Anirvan.Sarkar@MotilalOswal.com); +91 22 3982 5505
Alpesh Mehta
(Alpesh.Mehta@MotilalOswal.com); +91 22 3982 5415
| Piran Engineer
(Piran.Engineer@MotilalOswal.com); +91 22 3980 4393
7 December 2017
are advised to refer through important disclosures made at the last page of the Research Report.
1
Investors
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Sector Update | Financials
Metal and Power accounts have better recovery prospects; EPC & Service
sector accounts to remain a drag
We note that Metal and Power assets form bulk of the NCLT referred cases (~45% in
the two lists together). Healthy recovery in these sectors are thus critical to assess
the success of the NCLT route.
We are positive on recoveries in stressed steel assets (43% of the total list of
NCLT referred cases) due to – a) steel price cycle turning positive, leading to an
improvement in the debt-servicing ability, b) improvement in capacity utilization
across major industry players, and, c) higher interest among investors in
purchasing steel assets (Essar Steel and Bhushan Steel have already witnessed
healthy interest from bidders).
Our interaction with several corporate bankers suggests that the recovery rates
in power and manufacturing companies should also fare relatively well, as
power tariffs have firmed up recently, while it is the capitalizing of interest and
absence of PPAs that have made the underlying assets vulnerable. At adequate
haircuts and with proper PPAs in place, the power assets (thermal) are likely to
generate stable cash flows and can sustain as performing assets.
However, lenders are wary on a recovery trend in the EPC & Services sector
accounts, where the recovery rate is expected to be quite muted. This could
thus act as a drag on overall recovery rate arrived via NCLT route.
Tightening of bidding norms to cause near-term pain…
The government has recently passed an ordinance that prohibits willful defaulters
from bidding for assets. The following categories of promoters are also barred from
bidding – a) accounts that are classified as NPA for more than one year and are
unable to settle their overdue amount before submission of the resolution plan, b)
accounts that have executed an enforceable guarantee in favor of an insolvent
company being resolved under NCLT, and, c) related
entities/promoters/management. While the law is clearly aimed to prevent re-entry
of willful defaulters and thoroughly cleanse the system, it can potentially prevent
genuine promoters and/or related investors (such as global distressed asset
investors) from bidding for these assets. This can lower the number of eligible
bidders, and thus, result in higher LGDs for lenders. However, interpretation of the
clauses is subjective at this stage, and we await further clarity here. Our interaction
with bankers suggests that it would be even more difficult to find a buyer for smaller
assets, and thus, the loss rate on such accounts is likely to increase.
…but change in regulations will aid resolution for operating companies
One of the many challenges faced in resolution of accounts under IBC was the RBI’s
norm of classifying interim debt as NPA, which prevented lenders from offering
further funds to troubled borrowers. However, RBI has recently relaxed norms and
allowed interim debt to be classified as standard, which will encourage bankers to
go for interim lending in case of operating companies witnessing cash crunch, and
thus, help them turnaround.
7 December 2017
2

Sector Update | Financials
Our scenario analysis of 55-75% LGDs implies 3% to 39% impact on ABV for
PSUs; Private banks to witness modest impact of 1% to 8%
Our scenario analysis of 55-75% LGDs for the sector shows that PSU banks will
witness a positive impact of 3% to 39% on FY19E ABV from the resolution of the
NCLT cases. Among PSUs, the FY19E ABV impact is expected to be minimum for
Indian Bank (3% for 75% haircut, and 8% for 55% haircut) and the maximum for
Union Bank of India (14% for 75% haircut, and 39% for 75% haircut). Among private
banks, ICICIBC and AXSB will see modest 1% to 8% positive impact on ABV under the
scenarios that we have analyzed. We maintain our preference for SBIN, ICICIBC and
AXSB amongst corporate lenders.
7 December 2017
3

Sector Update | Financials
Steel and EPC dominate the list of NCLT referred cases
Exhibit 1:
Sector-wise distribution of 1 RBI list – by number
of accounts
Auto Anc
8.3%
Shipping
8.3%
Power 8.3%
EPC 55.7
Source: RBI, Company, MOSL
Source: RBI, Company, MOSL
Textile
8.3%
st
Exhibit 2:
Sector-wise composition of 1 RBI list – by total
exposure
Auto Anc
8.7
Textile 8.7
st
Metals 41.7%
Metals
55.7
EPC 25.0%
Exhibit 3:
Sector-wise distribution of 2 RBI list – by
number of accounts
Pharma -
4.5%
Consumer -
4.5%
Electronics -
4.5%
nd
Exhibit 4:
Sector-wise composition of 2 RBI list – by total
exposure
Power 3.6%
Consumer
3.9%
Electronics
34.4%
nd
Metals -
36.4%
Power -
13.6%
Metals
18.8%
EPC - 8%
Source: RBI, Company, MOSL
EPC 32.0%
Source: RBI, Company, MOSL
Exhibit 5:
Sector-wise distribution of combined list – by
number of accounts
Shipping -
11.8%
Consumer -
11.8%
Electronics -
11.8%
Power -
11.8%
Exhibit 6:
Sector-wise distribution of combined list – by
total exposure
Auto Anc -- 6%
Metals - 38.2%
Textile -- 6%
Electronics --
12%
Metals -- 43%
EPC -- 28%
EPC - 23.5%
Source: RBI, Company, MOSL
Source: RBI, Company, MOSL
7 December 2017
4

Sector Update | Financials
Exhibit 7:
Net stressed loans snapshot for corporate lenders
INRb
ICICIBC
444.9
241.3
20.3
26.8
121.9
34.8
3.7
195.9
103.5
541.1
11.2
378.7
37
4,827.8
1,027.9
AXSB
274.0
140.5
73.9
SBIN
(Merged)
1,861.1
979.0
340.2
200.0
105.4
BOB
463.1
195.7
79.6
5.7
39.3
7.1
34.3
79.4
282.4
7.3
197.7
48
3,873.0
408.3
PNB
576.3
345.7
104.6
165.0
UNBK
382.9
194.8
52.7
34.4
51.0
10.0
17.2
CBK
391.6
251.7
75.0
65.0
65.0
25.0
31.0
450.7
12.6
315.5
110
3,582.6
287.6
OBC
264.3
141.3
32.9
10.5
15.5
4.0
15.7
21.0
198.7
12.3
139.1
127
1,621.3
109.2
INBK
96.2
47.5
43.5
7.5
2.9
20.8
2.2
21.5
102.9
7.4
72.0
40
1,392.1
179.7
BOI
493.1
235.7
118.2
39.5
33.2
28.0
6.8
30.0
431.4
11.8
302.0
92
3,645.0
327.5
GNPA (2QFY18)
NNPA (2QFY18)
OSRL (Ex SEB and AI)
5:25 (incl. pipeline)
SDR
SR
S4A
Watch list
Overlap
Total Net Stressed
loans (NSL)
Total NSL as % of loans
Total @ 70%
% of NW eroded at
70% haircut
Loans
Networth
30.0
86.3
158.2
84.6
318.0
7.8
222.6
40
4,101.7
561.7
212.9
78.3
1,845.4
10.2
1,291.8
56
18,026.1
2,312.9
45.0
570.3
13.9
399.2
91
4,102.7
437.7
24.9
335.2
11.5
234.6
104
2,908.5
226.1
Source: MOSL, Company
Haircut at 70% of net stressed loans can impact networth by 37% to 100%+
for corporate lenders
Total net stressed loans (considering net NPA and non-overlapping standard
portions of OSRL/SDR/S4A/5:25/SR) vary between 7.3% and 13.9% of total loans for
the major banks under our coverage. We note that at 70% haircut on total net
stressed assets, the impact on net worth will range between 37% (ICICI Bank) and
127% (Oriental Bank of Commerce). Private banks are better placed than PSU banks
in terms of capital availability to absorb such potential losses; however, the
government’s recapitalization plan will enable PSU banks to make necessary
provisions toward such assets. Within PSU banks, SBI, PNB, BoB and INBK have
relatively strong capital buffer compared to OBC, BoI, CBK and UNBK.
Exhibit 8:
Exposure to NCLT lists by PSU banks and incremental provisioning needed
INR m
PSU Banks
Bank of Baroda
Bank of India
Canara Bank
Indian Bank
Punjab National Bank
State Bank of India
Union Bank of India
28
NA
NA
18
18
39
11
121.7
123.0
151.0
35.1
175.0
720.0
124.6
463.1
493.1
391.6
96.2
564.7
1,861.1
382.9
58%
52%
36%
51%
40%
43%
44%
26%
25%
39%
37%
31%
39%
33%
56.6
58.8
60.0
15.6
81.0
370.0
56.6
46%
48%
40%
45%
46%
51%
45%
55%
52%
55%
56%
55%
63%
55%
10.4
5.5
23.0
4.2
15.3
85.7
11.9
No. of
accounts
Exposure
Total
GNPL
O/s
PCR (%)
NCLT
Provisions
exposure as
on referred
% of total
accounts
GNPL
Provisioning Balance
Existing
requirement provision
coverage
as per RBI required
Source: MOSL, Company, RBI
7 December 2017
5

Sector Update | Financials
Exhibit 9:
Exposure to NCLT lists by private banks and incremental provisioning needed
INR m
New Private Banks
Axis
ICICI
IndusInd Bank
Kotak Bank
YES
Old Private Banks
Federal
J&K Bank
Karur Vysya Bank
South Indian Bank
No. of acc.
Exposure
Total
GNPL
O/s
PCR (%)
NCLT
Provisions
exposure as
on referred
% of total
accounts
GNPL
26%
42%
32%
6%
17%
3%
40%
51%
50%
38.9
71.9
2.7
1.3
2.3
0.3
12.0
4.4
2.8
Provisioning Balance
Existing
requirement provision
coverage
as per RBI required
55%
38%
61%
55%
51%
49%
50%
41%
32%
60%
55%
61%
55%
55%
55%
55%
55%
55%
3.4
31.2
-
-
0.2
0.1
1.2
1.5
2.1
8
NA
9
4
9
5
NA
6
5
70.4
187.5
4.4
2.4
4.5
0.6
24.0
10.8
8.9
274.0
444.9
13.5
38.1
27.2
19.5
59.8
21.4
17.7
65%
41%
60%
52%
43%
43%
59%
34%
29%
Exhibit 10:
Sensitivity analysis of FY19E ABV to haircut taken on NCLT lists for PSU banks | Private banks
INRb
PSU Banks
Bank of Baroda
Bank of India
Canara Bank
Indian Bank
Punjab National Bank
State Bank of India
Union Bank of India
PRIVATE BANKS
New Private Banks
Axis
ICICI
IndusInd Bank
Kotak Bank
YES
Old Private Banks
Federal
J&K Bank
Karur Vysya Bank
South Indian Bank
Total
provisioning
required
66.9
64.2
83.1
19.8
96.3
455.7
68.5
Net NPL of
these 12
accounts
54.8
58.8
68. 0
15.3
78.8
264.3
56.1
Total
NNPL
195.8
235.7
251.7
47.5
357.2
1,077.6
207.9
As % of total
Net NPL
28%
25%
27%
32%
22%
17%
27%
FY19E ABV
Impact on FY19E ABV at LGD of -
55%
12%
24%
26%
8%
22%
14%
39%
65%
8%
16%
18%
6%
15%
10%
26%
75%
4%
8%
10%
3%
8%
6%
14%
143
135
301
282
117
205
140
42.2
103.1
2.7
1.3
2.5
0.3
13.2
5.9
4.9
28.2
84.4
1.7
1.1
2.0
0.3
10.8
4,9
4.0
140.5
241.3
5.4
19.2
15.4
10.7
24.4
14.1
12.6
20%
35%
32%
6%
13%
3%
44%
35%
32%
241
122
436
223
124
63
85
95
25
4%
8%
1%
0%
0%
0%
16%
6%
6%
3%
5%
0%
0%
0%
0%
11%
4%
4%
2%
3%
0%
0%
0%
0%
6%
2%
2%
Source: MOSL, Company, RBI
7 December 2017
6

Sector Update | Financials
Haircuts on NCLT cases will impact FY19E ABV by 3% to 39% for PSU banks,
and 1% to 8% for private banks
Our scenario analysis suggests that the PSU banks will witness a higher impact on
ABV from the potential resolution of the NCLT cases from the two lists provided by
the RBI. The impact is expected to be the minimum for Indian Bank (3% for 75%
haircut, and 8% for 55% haircut) and the maximum for Union Bank of India (14% for
75% haircut, and 39% for 55% haircut). Among private banks, IIB, KMB and YES will
see no impact on ABV from haircuts due to their minimal exposure to NCLT-referred
cases. However, ICICI Bank and Axis Bank will see 1% to 4% impact on ABV under our
three resolution scenarios.
Timelines for action under IBC
Activity
Public announcement of admission of case
Appointment of valuers for corporate debtor assets
Circulation of first information memorandum
First Committee of Creditors (CoC)
Assessment of liquidation value of firm
Receive resolution plans from
corporate debtor/RP
Approval of resolution plan and submission to NCLT
Timeline
Within 3 days of NCLT order
Within 7 days of appointment
Before the first CoC
Within 30 days from date of NCLT order
Within 14 days of 1 CoC
Up to 30 days before end date of CIRP
(180-30 days or 270-30 days) as applicable
180/270 days as applicable
st
7 December 2017
7

Sector Update | Financials
A closer peek at select NCLT cases
Synergies Dooray, the first resolution under NCLT; underscores potential
exploitation of loopholes?
Synergies Dooray,
a Hyderabad based auto ancillary firm, was referred for
resolution under IBC in January 2017. It was the first case for whom a resolution
plan was approved by NCLT. The resolution plan involved a 94% haircut on the
company’s total outstanding debt of INR9.7b.
The resolution plan accepted by the CoC entailed accepting payment of INR586m
against total outstanding of INR9.7b in accordance with the schedule shown below.
Exhibit 11:
Synergies Dooray Resolution Plan
Dues to
Financial Creditors
Operational Creditors
Government and Statutory
Dues
Total
Amount claimed/
due (INR m)
9,721.5
2.3
38.9
9,762.7
Amount to be
paid (INR m)
546.9
0.1
38.9
585.9
Against Liquidation Value of
INR81.7m
Source: IBBI, MOSL, Company
Remarks
Payments to be made in
staggered manner over time
Edelweiss ARC appealed to the NCLAT against the decision, alleging that a transfer
of debt between three related parties – Synergies Dooray, its sister concern
Synergies Castings, and an NBFC, Millennium Finance – had been carried out with an
intent to secure a seat on the CoC to gain approval for a high haircut. In October
2017, the NCLAT admitted Edelweiss’s plea.
Innoventive Industries, the first liquidation order under NCLT; dealt with an
iron hand
Innoventive Industries, a Pune-based steel manufacturer with total debt of INR9.6b,
has been reported to be put up for liquidation after rejection of two resolution
proposals. At the time of admission of the case by the NCLT, the company had
appealed against the admission on the ground that it had received a one-year relief
(July ’16 – June ’17) under the Maharashtra Relief Undertaking (Special Provisions)
Act. The appeal was rejected by the NCLAT on the ground that the company still
remains a defaulter and the IBC framework provides a priority for employee dues.
Bhushan Steel, the biggest account in the first list of accounts
Bhushan Steel, with a debt of INR445b, appeared on the RBI’s 1st list and is the
biggest account in the two lists combined. Bhushan Steel was admitted by the NCLT
on 26th July 2017. The company has received widespread interest from several firms
for its assets, and thus, presents one of the better off accounts in terms of
resolution potential. Potential bidders (according to news reports) include JSW
Steel, Tata Steel, Bain Capital, AION Capital, Oaktree Capital, and Lone Star Funds,
among others.
7 December 2017
8

Sector Update | Financials
Essar Steel, the 2nd biggest steel account in the 1st list; active interest from
bidders
Essar Steel, with a debt of INR373b, appeared on the 1st NCLT list provided by the
RBI. Essar’s case was admitted by the NCLT on 2nd August 2017 post a brief legal
stalemate, where Essar Steel filed a case against the RBI alleging differential
treatment and the lack of care in considering developments in the case post 31
st
March 2016. Essar Steel, however, is one of the accounts with a better resolution
prospect, as evident from the active interest shown by several firms in acquiring its
assets, including JSW Steel, SAIL, Tata Steel and ArcelorMittal. Alvarez & Marshall’s
Satish Kumar Gupta is acting as the IRP for Essar Steel.
Monnet Ispat: In demand!
Monnet Ispat features on the list of 12 accounts referred for resolution under IBC to
NCLT by the RBI in June. The company has a total debt of INR121b from lead banker
SBIN, along with others including INBK, BOI, OBC, DNBK, IOB, IDBI, BOM and others.
The NCLT has admitted the case in July 2017, the case is still under resolution by the
NCLT. According to news reports, Monnet Ispat has received active interest from
investors, including Tata Steel, JSW Steel, Vedanta, Edelweiss ARC, Blackstone, TPG
and SSG Capital.
Petition against Jaypee Infratech
Jaypee Infratech is another one among the 12 cases referred to the NCLT by the RBI.
With an outstanding debt of INR96b, Jaypee Infratech was a more complicated case
than others, as it was yet to deliver homes (on which it had accepted down
payments) to 35K home buyers. NCLT has taken on the concern of home buyers on
the same footing as that of shareholders. The Apex court has directed the Senior
Counsel Mr Shekhar Naphade and Advocate-on-record Ms Shubhangi Tuli to oversee
the interest of home buyers and has also instructed Jaiprakash Associates to deposit
INR20b before the Apex Court on or before 27 October 2017.
Other appeals to NCLT filed recently
Most recently, China Development Bank has filed a case against Reliance
Communications (RCom) to the NCLT. This is a counter development, as domestic
lenders have restructured RCom under the SDR route to settle its INR310b debt, and
admission of the case by the NCLT may require additional provisional pressure on
the banks. We await further development on this.
Other liquidations ordered
A few other cases (not belonging to the two lists) have received liquidation orders
(REI Agro, Hada Textiles and Oasis Textiles) between August and November 2017.
7 December 2017
9

Sector Update | Financials
Exhibit 12:
A snapshot of select past and pending cases under IBC
Corporate debtor
Synergies Dooray
Innoventive
Industries
Gupta Coal India
Monnet Ispat
Jaypee Infratach
Jyoti Structures
Essar Steel
Bhushan Steel
Date of admission
by NCLT
23-01-2017
17-01-2017
09-03-2017
18-07-2017
Aug-17
04-07-2017
02-08-2017
26-07-2017
Lead Lender
Millennium Finance
ICICI Bank
Bank of India
State Bank of India
State Bank of India
State Bank of India
State Bank of India
State Bank of India
Resolution
date
NA
NA
NA
NA
NA
NA
NA
NA
Total debt
(INRb)
9.7
9.6
2.6
121
96.4
51.7
372.8
444.8
Haircut
Resolution status
proposed (%)
•
Resolution approved in July '17
94
but appeal against resolution by
ARC admitted in Oct '17
NA
NA
NA
NA
NA
NA
NA
•
•
•
•
•
•
•
Liquidation ordered in Oct '17
Liquidation ordered in Dec '17
Ongoing
Ongoing
Ongoing - has received EOI from
potential bidders according to
news reports
Ongoing - has received EOI from
potential bidders
Ongoing - has received EOI from
potential bidders
Source: IBBI, MOSL, Company
High number of cases filed over 1HFY18; resolution process expected to
pick up over 4QFY18
A total of 376 cases have been admitted by the NCLT till date in CY17, of which four
have been resolved and 14 have been ordered for liquidation. The remaining are still
pending resolution. It is interesting to note (Exhibit 15) that more cases have been
referred by the operational creditors than by the financial creditors.
Exhibit 13:
18 out of total of 376 admitted cases have been resolved in CY17
Quarter
Jan - Mar, 2017
Apr - Jun, 2017
Jul - Sep, 2017
Till Date
No. of Corporates
undergoing Resolution
at the beginning of the
Quarter
0
36
151
NA
Admitted
37
125
214
376
Closure by
appeal
1
10
3
14
Closure by
approval of
resolution plan
0
0
2
2
Closure by
No. of Corporates
commencement undergoing Resolutions at
of liquidation
the end of the Quarter
0
0
7
7
36
115
353
353
Source: IBBI, MOSL, Company
Exhibit 14:
More operational creditors than financial creditors in the cases referred
Quarter
Jan - Mar, 2017
Apr - Jun, 2017
Jul - Sep, 2017
Till Date
No. of Resolutions Processes Initiated by
Financial Creditor
9
31
82
122
Operational Creditor
7
59
101
167
Corporate Debtor
21
35
31
87
Total
37
125
214
376
Source: IBBI, Company, MOSL
7 December 2017
10

Sector Update | Financials
Appendix
Exhibit 15:
The 1 list of accounts referred to the NCLT
Company
Bhushan Steel
Lanco Infra
Essar Steel
Bhushan Power
Alok Industries
Amtek Auto
Monnet Ispat
Electrosteel Steels
Era Infra
Jaypee Infratech
ABG Shipyard
Jyoti Structures
Total
Sector
Metals
EPC
Metals
Metals
Textile
Auto anc
Metals
Metals
EPC
EPC
Shipping
Power
Amount (INR b)
444.8
443.7
372.8
372.5
220.8
140.8
121.2
102.7
100.7
96.4
69.5
51.7
2,537.3
Source: RBI, MOSL, Company
st
Exhibit 16:
The 2 list of accounts referred to the NCLT
Company
Anrak Aluminium
Asian Color Coated Ispat
Castex Technologies
Coastal Projects
East Coast Energy
IVRCL
Jayaswal Neco Industries
Orchid Pharma
SEL Manufacturing
Soma Enterprise
Uttam Galva Metallic
Uttam Galva Steel
Videocon Telecom
Videocon Industries
Visa Steel
Essar Projects
Jai Balaji Industries
Jaiprakash Associates
Monnet Power
Nagarjuna Oil Refinery
Ruchi Soya Industries
Wind World India
Total
Sector
Metals
Metals
Metals
EPC
Power
EPC
Metals
Pharma
Textile
EPC
Metals
Metals
Telecom
Electronics
Metals
EPC
Metals
EPC
Power
Oil
Consumer
Power
Amount (INR b)
38.9
30.2
13.0
37.0
NA
35.8
38.5
37.6
31.4
19.0
30.0
50.4
32.1
475.5
29.8
50.3
29.8
300.0
50.0
NA
53.3
NA
1,382.2
Source: RBI, MOSL, Company
nd
7 December 2017
11

Sector Update | Financials
Process Flow under NCLT resolution
Asset resolution under IBC is processed in three stages.
a) Initiation of the
Corporate Insolvency Resolution Process (CIRP)
once the NCLT
admits an application from a creditor appealing against a corporate debtor with a
default of at least INR0.1m.
b)
CIRP
which entails resolution of the asset within a period of 180+90 days (90+45
days under fast track), failing which the assets of the corporate debtor are
liquidated.
c)
Liquidation process
which involves selling assets of the corporate debtor to
recover dues to the extent possible.
Exhibit 17:
Initiation of CIRP for operational creditors
Reply received by OC
along with proof
Payment default of
INR0.1m or more
committed by a
corporate debtor
OC issues
notice/invoice
in specific
prescribed
format
CD replies within 10
days with proof of
1) existing dispute or
2) repayment
(electronic transfer or
cheque only)
Payment received by OC
No reply as prescribed
received by OC
Reject application (7
days to be provided for
rectification)
Initiation of CIRP
Commencement Date
NCLT scrutinizes application in 14
days to determine
1) Application is complete
2) There is no repayment
3) Delivery of invoice/Notice
4) No notice of dispute received
or recorded with IU
5) Any disciplinary action
pending against IRP
OC to make an application (any time
after 10 days) for resolution along
with
1) Copy of notice/invoice
2) Affidavit stating no notice of
dispute
3) Certificate from the financial
institution maintaining accounts
of the OC stating no payments
against an operational cost has
been received
4) May suggest name of an IRP
Source: MOSL, Company
7 December 2017
12

Sector Update | Financials
The CIRP involves appointment of an IRP by the NCLT to handle the case with a
stated closing date for the resolution process. The appointed IRP takes over the
management of the company as the board of directors gets suspended. The IRP also
constitutes a Committee of Creditors (CoC) and oversees the resolution process,
while the CoC acts as the authority which approves/rejects the resolution plan.
CIR Process Snapshot (Time limit: 180 + 90 days or 90 + 45 days for fast
track CIRP)
Exhibit 18:
CIR Process Snapshot (Time limit: 180 + 90 days or 90 + 45 days for fast track CIRP)
Declaration of moratorium - bars legal proceedings & enforcement of security interest; status quo of
assets of CD to be maintained; supply of essential goods and services to be continued
Appointment of IRP - within 14 days
Public announcement - specifies last day of submission of claim, closing date of CIRP
Tenure of 30 days (default time for constitution of CoC by IRP, though no statutory prescription)
Management to vest in IRP - Powers of board of Directors/Partners suspended
Receive and collate all claims; monitor assets and manage operations; take control and custody of any
asset including assets in foreign countries; raise interim finance but not create security on encumbered
property without consent
Constitute Committee of Creditors (CoC) comprising financial creditors after collation of claims
All decisions to be taken by FCs representing 75% of the outstanding financial debt
Confirm IRP as RP or replace IRP - any time change RP
Approve/reject resolution plan - resolve to liquidate any time during CIRP
NCLT
IRP
CoC
If Resolution Plan approved - CIR
process successfully completed
If no Resolution Plan approved and/or
submitted, Liquidation triggered
Source: MOSL, Company
7 December 2017
13

Sector Update | Financials
In the absence of an acceptable resolution plan, the third step in the process is
triggered, i.e., liquidation of assets. Post public announcement of a liquidation order
by the NCLT, the resolution professional takes over the role of a liquidator and
forms a liquidation estate to sell assets and then distribute in accordance with the
priority waterfall of claims.
Liquidation process snapshot
Exhibit 19:
Liquidation process snapshot
No resolution plan submitted to NCLT within 180+90 days (90+45 days for fast track CIRP)
NCLT rejects Resolution Plan
CoC decides to liquidate anytime during CIRP
Corporate Debtor contravenes approved Resolution Plan, prejudicially affected party applies for
liquidation
Pass an order of liquidation and make a public announcement
RP to continue as a liquidator unless removed by NCLT
No suit or proceedings can be instituted by or against CD, subject to right of secured creditor to
stand outside liquidation - NCLT to have jurisdiction to entertain/dispose of all claims made by or
against CD; any question of priorities; any question of law or fact in relation to liquidation
Civil court jurisdiction excluded
Regulation provides that liquidation process must be complete in 2 years
Trigger
NCLT
Liquidator
Receive claims from creditors in 30 days and verify the same
Accept or reject the claims - determine the value of the claims
Form a liquidation estate
Apply to NCLT for avoidance of any preferential/undervalued/extortionate transactions
Sell the immovable and movable property and actionable plans of the CD by public auction or by
private contract
Distribution in accordance with newly described waterfall mechanism
Acts subject to supervision of Adjudicating Authority
Source: MOSL, Company
7 December 2017
14

Sector Update | Financials
Priority waterfall of claims under IBC resolution
Exhibit 20:
Priority waterfall of claims under IBC resolution
Liquidation order will be passed if:
CIRP ends
Plan not submitted to NCLT
Decided by CoC
Plan not properly implemented
Insolvency resolution process and
liquidation costs
Reporting:
Preliminary report - within 30 days
from the date of the order
Progress report - within 15 days
after end of every period of 3
months from the date of order
Secured creditors and workmen
dues (up to 24 months)
Liquidation steps:
Appointment of liquidator
Formation of liquidation estate
No legal proceedings by or against
the debtor
Consolidation of claims
Distribution of assets
Dissolution of debtors (to be
completed within 2 years)
Other employee dues (up to 12
months)
Financial debts of unsecured
creditors
Insolvency and liquidation cost:
Insolvency cost includes interim
funding, cost of running debtor as a
going concern (rent or salary of
employees, cost of IP etc)
Liquidation cost includes any cost
incurred by liquidator during
liquidation period
Government dues (up to 2 years)
and unpaid secured creditors
Secured creditor in liquidation:
Secured creditor has option to:
Enforce and realize the security
outside the Code or
Relinquish its security interest and
receive proceeds as defined in the
priority of claims
Distinction between rights of
different classes of secured
creditors (first vs second charge,
fixed vs floating charge) is not
clarified in the Code of regulations
Any remaining debts and dues
Liquidator shall:
Form liquidation estate
Take into custody & control all
assets
Consolidate, verify, admit and
determine value of creditors' claims
Carry on the business for its
beneficial liquidation
Preference shareholders, if any
Equity shareholders or partners, as
the case may be
Source: MOSL, Company
7 December 2017
15

Disclosures:
Sector Update | Financials
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NOTES
Disclosure of Interest Statement
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Companies where there is interest
No
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Motilal Oswal Asset Management Company Ltd. (MOAMC): PMS (Registration No.: INP000000670) offers PMS and Mutual Funds products. Motilal Oswal Wealth Management Ltd. (MOWML): PMS (Registration No.:
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7 December 2017
16