Financial creditors may realise ₹60,000 crore to ₹65,000 crore through IBC (the Insolvency and Bankruptcy Code) in FY21, a significant decline compared to ₹1-lakh crore in FY20, due to pandemic-related issues and suspension of fresh proceedings, according to credit rating agency ICRA.

The credit rating agency warned that realisation from resolution plans could continue to suffer in FY22 as fresh insolvency proceedings have been suspended till December 25, 2020, for accounts which default after March 25, 2020, and could be further extended by three more months..

ICRA observed that the outbreak of Covid-19 and the suspension of new proceedings under the IBC have resulted in a sharp slowdown in resolution process and, accordingly, the realisation for financial creditors has declined.

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

Abhishek Dafria, Vice-President and Group Head – Structured Finance, ICRA, says: “The pandemic has thrown up new operational challenges for the various parties involved in a resolution process.

“The resolution of CIRPs would continue to get impacted during the remaining period of FY21 due to a decline in the number of CIRPs yielding a resolution plan as well as an increase in haircuts that lenders would have to take.”

Even the expected realisation of ₹60,000 crore to ₹65,000 crore in FY21 would largely depend on the expected successful resolution of a large housing finance company currently under IBC process, he added.

During the first half of FY21, the number of cases admitted (which were in default before the suspension of new proceedings under IBC was announced) declined by 82 per cent (161 versus 889) compared to first half of FY20, ICRA said.

Also, the backlog of cases has not reduced due to hampering of normal business operation during the pandemic. The agency observed that the number of CIRPs closed during H1 FY21 declined by 61 per cent compared to H1 FY20.

Sankha Subhra Banerjee, Assistant Vice-President, ICRA, said new insolvency proceedings initiated in FY22, 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).

Thus, ICRA expects both, FY21 and FY22, to see relatively lower realisations from CIRPs for lenders compared to the preceding years.

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