Financial creditors' gains from IBC cases to fall to Rs 65,000 cr in FY21 due to pandemic: Report

Debt resolution through the insolvency and bankruptcy code (IBC) and the resultant realization for financial creditors has taken a hit so far this fiscal due to the pandemic that led to suspension of fresh proceedings, says a report. At best, financial creditors may realize Rs 60,000-65,000 crore through IBC in FY21, significantly lower than Rs 1,00,000 crore they realized in FY20, Icra said in a report on Tuesday.

The rating agency said better realization looks uncertain even in FY22 due to the suspension of the code for a one-year period due to the pandemic. The number of admitted cases declined 82 percent to 161 in the first half of the current fiscal from 889 cases in the year-ago period, while the number of cases resolved during the reporting period declined by 61 percent over the year-ago period as the case backlog jumped due to the pandemic-driven lockdowns.

For the first six months of FY21, only 42 cases undergoing insolvency process have been resolved/plan approved, yielding just about Rs 12,600 crore for financial creditors, Icra said. Abhishek Dafria, vice-president and group head for structured finance at the agency, said, "The pandemic has sort of ensured that the IBC resolution process may continue to get impacted in the second half due to the decline in cases yielding a resolution plan as well as an increase in haircuts that lenders would have to take.

"Even the expected realization of Rs 60,000-65,000 crore for the year would largely depend on the successful resolution of a large housing finance firm (DHFL) currently underway." The realization may continue to suffer next fiscal as fresh insolvency cases are suspended till December 25 this year, which may be further extended by three months or more, he added. On the likely decline in realizations next year, Sankha Subhra Banerjee, assistant vice-president at the agency, said new insolvency proceedings initiated in FY22 are unlikely to get resolved in the same year given that the average time taken to conclude a resolution stands at 433 days now.