Amid coronavirus pandemic and the suspension of new proceedings under the Insolvency and Bankruptcy Code (IBC), financial creditors may realise just Rs 60,000-65,000 crore in the current fiscal through successful resolution plans from the IBC, as compared to about Rs 1 lakh crore in the last financial year (FY20), registering a decline of up to 40 per cent, according to ICRA. Going ahead, realisations for financial creditors could continue to suffer in FY22 due to suspension of fresh insolvency proceedings till December 25, 2020, for accounts which defaulted after March 25, 2020, which be extended by three more months, the rating agency said.
"The outbreak of COVID-19 pandemic and the suspension of new proceedings under the Insolvency and Bankruptcy Code (IBC) have resulted in a sharp slow-down in resolution process and accordingly the realisation for financial creditors has declined," ICRA said in its report.
For the first six months of FY21, only 42 companies undergoing a corporate insolvency resolution process (CIRP) have seen a resolution plan being approved, yielding Rs 12,600 crore as recovery for financial creditors.
During April-September period of the current fiscal, number of cases admitted (which were in default before the suspension was announced) declined by 82 per cent (161 cases vs 889 cases) compared to first half of FY20. Also, the backlog of cases has not reduced due to hampering of normal business operations during the pandemic. The number of CIRPs closed during H1FY21 declined by 61 per cent compared to H1FY20, ICRA said.
Commenting on this, Abhishek Dafria, Vice President and Group Head - Structured Finance, ICRA, said, "The pandemic has thrown up new operational challenges for the various parties involved in a resolution process. The resolution of CIRPs would continue to get impacted during the remaining period of FY21 due to a decline in the number of CIRPs yielding a resolution plan as well as an increase in haircuts that lenders would have to take. Even the expected realisation of Rs 60,000-65,000 crore in FY21 would largely depend on expected successful resolution of a large housing finance company currently under IBC process."
Further, new insolvency proceedings initiated in FY22, once the suspension on fresh insolvency proceedings is lifted, are unlikely to get resolved in the same fiscal, given the typical average time-period seen for CIRPs to conclude with a resolution plan is quite high (currently at 433 days). Thus, ICRA expects both FY21 and FY22 to see relatively lower realisations from CIRPs for lenders compared to the preceding years, said Sankha Subhra Banerjee, Assistant Vice President, ICRA.