Financial creditors may realise Rs 55,000-60,000 cr through IBC in FY22: Report

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June 07, 2021 5:03 PM

Financial creditors may realise Rs 55,000-60,000 crore in fiscal 2021-22 through successful resolution plans from the Insolvency and Bankruptcy Code (IBC), credit rating agency Icra has said.

The mechanism will ensure the CoC members abide by the rules and the stressed asset resolution process remains transparent.The mechanism will ensure the CoC members abide by the rules and the stressed asset resolution process remains transparent.

Financial creditors may realise Rs 55,000-60,000 crore in fiscal 2021-22 through successful resolution plans from the Insolvency and Bankruptcy Code (IBC), credit rating agency Icra has said. The realisation for financial creditors from the resolution of Corporate Insolvency Resolution Process (CIRP) under the IBC declined significantly in FY2021 with a total resolution amount of around Rs 26,000 crore, almost a quarter of the realisations in FY2020, the agency said. “As per our estimates, the financial creditors could realise about Rs 55,000-60,000 crore in FY2022 through successful resolution plans from the IBC,” the agency’s Vice President and Group Head Structured Finance, Abhishek Dafria, said in a report.

The increase in the resolution amount in FY2022 would depend on the expected resolution of a large housing finance company which is awaiting the NCLT’s approval but is also under litigation in the higher courts, he said. In the current financial year, the realisation by the financial creditors would depend on the successful resolution of 8-9 big-ticket accounts, as more than 20 per cent of the agency’s estimated realisation for the year could be from these alone, he added.

Dafria, however, said if the second wave of the pandemic does not subside soon, it could have a bearing on the agency’s estimates as the difficult operating environment may result in a slowdown in the resolution process, especially for smaller-sized entities, and would also result in an increase in the haircuts for the lenders. The agency said the pandemic has increased operational challenges for the various parties involved in a CIRP, which resulted in limited cases yielding a resolution plan. The suspension of new proceedings under the IBC for the entire FY21 resulted in a sharp slow-down in the resolution process.

From its commencement in December 2016, 4,376 CIRPs have been admitted, of which 2,653 were closed till March 2021, the report said. The agency believes that there have been some positive outcomes from the presence of the 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 which highlights that at least some promoters have been more willing to pay their dues to keep the IBC proceedings at bay,” it said.

For CIRPs 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, the report said. “Nonetheless, the extent of cases being referred to liquidation remains high at about 40 per cent and only a quarter of such cases have seen the liquidation process come to a conclusion.

The average realisation through liquidation has been a mere around three per cent of the claim amount,” the agency’s Assistant Vice President and Sector Head, Sankha Subhra Banerjee, said. Improving the turnaround time for successful resolution and finding enough interest in defaulting assets from external parties in the current environment will remain the key challenges for a while, he added.

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