Projection vs recovery: Lenders may fall short of recovery target by more than Rs 50k cr in Q4

March 30, 2021 8:08 AM

Lenders may miss their recovery target by more than Rs 50,000 crore during the March quarter (Q4FY21) due to delay in the approval of resolution plans by bankruptcy courts.

lendersIn all of these cases, the committee of creditors (CoC) has already approved the resolution plans, but final nod is awaited from courts.

By Ankur Mishra, 

Lenders may miss their recovery target by more than Rs 50,000 crore during the March quarter (Q4FY21) due to delay in the approval of resolution plans by bankruptcy courts. These cases include Dewan Housing Finance Corporation (DHFL), Jet Airways, Reliance Communications and Videocon, among others.

In all of these cases, the committee of creditors (CoC) has already approved the resolution plans, but final nod is awaited from courts. Once approved by the court, lenders will receive Rs 34,250 crore in DHFL, Rs 23,000 crore through Reliance Communications and Rs 3,000 crore through Videocon resolution, among others. Many lenders had announced their projection of recovery in Q4FY21 during the earnings presentation held in the December quarter.

For instance, Union Bank of India had projected to recover around Rs 3,000 crore through DHFL and Bhushan Power and Steel (BPSL) resolution. Although, lenders were able to recover Rs 19,350 crore from BPSL resolution, DHFL resolution is still awaiting nod from National Company Law Tribunal (NCLT).

An Icra report had earlier estimated that financial creditors may realise just Rs 60,000-65,000 crore in 2020-21 (FY21) from the Insolvency and Bankruptcy Code (IBC), as compared to about Rs 1 lakh crore in FY20. With the moratorium on new insolvency proceedings under the IBC code been lifted, experts anticipate an avalanche of distressed companies and real estate projects in the months to come.

The withdrawal of relaxation by the government would mean that creditors and lenders would approach courts and tribunals in full might to recover from last years monetary depression, said Sonam Chandwani, managing partner at KS Legal & Associates.

Similarly, Misha, partner at Shardul Amarchand Mangaldas, said, “The backlog of cases will increase unless pro-active steps are taken by the bar and the bench in a cohesive manner to efficiently use the virtual/hybrid systems of hearings prevailing at present to expeditiously deal with pendency.”

Ashish Pyasi, associate partner, Dhir and Dhir Associates, said, “In order to expedite the process specially after the approval from the CoC, increasing the strength of the bench will help in expediting the hearing of applications for approval of resolution plans.” Also, the preference to these applications will further expedite the process, he added.
Earlier, the financial stability report released by Reserve Bank of India (RBI) also highlighted that the average time taken for resolutions has been much more than the outer limit prescribed in the Insolvency and Bankruptcy Code (IBC).

The corporate insolvency resolution process (CIRPs) took an average of 433 days as of September 2020, compared to maximum period of 330 days prescribed in the IBC.

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