The suspension on new proceedings under India’s bankruptcy law and the lockdown caused due to the pandemic could lead to a sharp fall in recovery through the Insolvency and Bankruptcy Code (IBC). Rating agency ICRA expects that the financial creditors could realise about Rs 60000-65000 crore in the current fiscal year through successful resolution plans from the IBC as compared to about Rs 1 lakh crore recovered in FY2020. So far, only 42 companies undergoing an insolvency resolution process have seen a resolution plan being approved, yielding Rs 12600 crore as recovery for financial creditors.
“The resolution of insolvencies would continue to get impacted during the remaining period of FY2021 due to a decline in the number of insolvency plans yielding a resolution plan as well as an increase in haircuts that lenders would have to take,” said Abhishek Dafria, Vice President and Group Head – Structured Finance, ICRA. “Even the expected realisation would largely depend on expected successful resolution of a large housing finance company currently under IBC process,” Dafria added.
ICRA also noted that realisation from resolution plans could continue to suffer in fiscal year 2022 as fresh insolvency proceedings have been suspended till December 25, 2020, for accounts which defaults after March 25, 2020 and could be further extended by three more months. During first half of FY2021, number of cases admitted declined by 82% compared to first half of FY2020. Also, the backlog of cases has not reduced due to hampering of normal business operation during the pandemic.
The number of insolvency plans which closed during the first half of the current fiscal year declined by 61% compared to in the same period last year. “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 to conclude with a resolution plan is quite high, currently at 433 days,” said. Sankha Subhra Banerjee, Assistant Vice President, ICRA.
Source : Financial Express