Realisations through IBC to take a hit of up to 40% in FY21: Icra

Covid-19 outbreak, suspension of new proceedings under IBC has sharply slowed down resolution process causing realisation for financial creditors to decline

Financial creditors may realise just Rs 600-650 billion in FY21 through successful resolution plans from the Insolvency and Bankruptcy Code, as compared to about Rs one trillion FY2020, according to estimates by Icra.

“The outbreak of the Covid-19 pandemic and the suspension of new proceedings under the IBC has resulted in a sharp slowdown in the resolution process and accordingly the realisation for financial creditors has declined.” 

For the first six months of FY21, only 42 companies undergoing corporate insolvency resolution process (CIRP) have seen a resolution plan being approved. This yielded Rs 12,600 crore as recovery for financial creditors.

The backlog of cases has not reduced due to normal business operations getting hampered during the pandemic. The number of CIRPs closed during first half FY21 declined by 61 per cent compared to corresponding period last year. 

Realisations for financial creditors in the next financial year is also uncertain, Icra said due to the suspension of fresh insolvency proceedings.

“Even the expected realisation in FY21 would largely depend on the expected successful resolution of a large housing finance company currently under IBC process,” said Abhishek Dafria, Vice President and Group Head–Structured Finance, Icra. 

Fresh insolvency proceedings have been suspended till December 25, 2020. The IBC has a provision that enables the government to extend this suspension up to March 2021. A decision in this regard is yet to be taken. 

“New insolvency proceedings initiated in FY2022, once the suspension on fresh insolvency proceedings are 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,” said Sankha Subhra Banerjee, Assistant Vice President, Icra.