Lenders can realise Rs 55,000-60,000 crore from IBC cases in FY22

Large housing finance company resolution seen as key drive; second wave could cause delays and increase haircuts

Financial creditors could realise Rs 55,000-60,000 crore in FY22 from cases in the bankruptcy court, largely driven by the likely resolution of a large housing finance company. However, the second Covid-19 wave could again delay resolutions and increase haircuts, according to Icra.

The realisation for financial creditors from the resolutions under the Insolvency and Bankruptcy Code (IBC) 2016 declined significantly in FY21 with a total resolution amount of about Rs 260 billion, almost a quarter of the realisations in FY2020.

Abhishek Dafria, Vice President and Group Head–Structured Finance, Icra, said besides the fate of the HFC case, realisation by financial creditors would depend on the successful resolution of 8-9 big-ticket accounts. Over 20 per cent of Icra’s estimated realisation for the year could be from these alone.

However, large accounts mostly see a very high level of delay in closures due to litigations, which is a concern. Further, if the second wave of the pandemic does not subside soon, it could have a bearing on estimates as the difficult operating environment may slow down the resolution process. This is more so for smaller-sized entities, and would also cause an increase in haircuts for lenders, Icra added.

The resolutions under IBC have been affected over the years by the overburdened National Company Law Tribunal (NCLT), innumerable litigation, defiant promoters and failing sectors. Even with such challenges, the IBC process has progressed significantly. From its commencement in December 2016, 4,376 Corporate Insolvency Resolution Process (CIRPs) have been admitted, of which 2,653 were closed till March 2021.

Icra said there have been some positive outcomes from the presence of IBC despite the delays that are becoming common. About 40 per cent of the cases admitted by the NCLT were closed on appeal/ review or settled or withdrawn under Section 12A. This shows that at least some promoters have been more willing to pay their dues to keep the IBC proceedings at bay.

For cases that have yielded a successful resolution, the financial creditors have realised / are expected to realise an average 39 per cent of their claims while the realisation value, in comparison to their liquidation value, stands at 180 per cent, Icra said.