India's corporate credit cycle stable, lenders' asset quality safe

India’s corporate credit cycle is expected to remain stable, backed by strong corporate balance sheets and moderate debt levels, limiting risks to lenders' asset quality, according to a report by Kotak Institutional Equities.

India’s corporate credit cycle is likely to remain stable in the near term, supported by strong corporate balance sheets, moderate debt levels and a capital expenditure cycle largely funded through companies’ own cash flows, according to a report by Kotak Institutional Equities. The brokerage said these factors are expected to limit the risk of a significant deterioration in lenders’ asset quality.

Corporate Stress and IBC Data

The latest data under the Insolvency and Bankruptcy Code (IBC) also showed that fresh corporate stress remained broadly stable. A total of 177 Corporate Insolvency Resolution Processes (CIRPs) were admitted in the first quarter of FY27, compared with 668 cases during the whole of FY26. Financial creditors initiated 116 of the 177 cases, indicating a continued shift away from insolvency cases being primarily initiated by operational creditors.

Challenges in the IBC Framework

However, Kotak said the effectiveness of the IBC continues to be affected by delays in the resolution process and low recovery levels. Of the 1,500 cases resolved so far, the average resolution time was 757 days, well above the stipulated timelines. As of June 2026, nearly 76 per cent of ongoing CIRPs had crossed the 270-day threshold, highlighting the continued delays in completing insolvency proceedings.

Recovery levels have also remained weak. Creditors have realised around Rs 4.6 lakh crore against nearly Rs 14 lakh crore of debt resolved cumulatively under the IBC. While recoveries were about 167 per cent of liquidation value, they represented only around 31 per cent of admitted claims, resulting in an overall haircut of nearly 70 per cent.

Large insolvency cases continue to highlight the extent of these haircuts. In the case of Jaiprakash Associates, which was resolved in the fourth quarter of FY26, creditors recovered only about 23 per cent of admitted claims of nearly Rs 60,600 crore.

Signs of Improvement in Insolvency Outcomes

At the same time, there are signs of improvement in insolvency outcomes. The resolution-to-liquidation ratio has increased steadily to an all-time high of 1.28, indicating a growing shift towards resolution rather than liquidation. Manufacturing accounted for around 40 per cent of admitted resolution plans, making it the largest contributing sector.

Despite this improvement, liquidation remains the most common closure route. A cumulative 3,074 corporate debtors have moved into liquidation, compared with 1,484 resolutions. Moreover, 79 per cent of ongoing liquidation cases had remained pending for more than two years.

Reforms and Future Outlook

Kotak said recent reforms aimed at speeding up the admission of cases through Information Utility records and providing greater flexibility in structuring resolution plans could help improve resolution timelines and recovery outcomes. The brokerage expects the stable corporate credit environment to remain supportive for lenders. Despite persistent challenges related to IBC delays, liquidation and recoveries, it sees limited signs of near-term risks to lenders’ asset quality. (ANI)

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