‘Second wave may delay resolutions, increase haircuts’

FY22 realisation under IBC rests on 8-9 large accounts: ICRA

The second wave of the COVID-19 pandemic may again delay resolutions under the Insolvency & Bankruptcy Code (IBC) and increase haircuts for lenders, though realisations for financial creditors through IBC is likely to improve under the Code in FY22, ICRA said in a report.

Stating that realisation for financial creditors from the resolution under the IBC declined significantly fell to ₹26,000 crore in FY21 — almost a quarter of the realisations in FY20 — it said financial creditors may realise about ₹55,000-60,000 crore in FY22, largely driven by the expected resolution of a large housing finance firm. This is likely to , it added without naming be DHFL.

“The outbreak of the COVID-19 pandemic and its related effects in FY21 battered the prospects for stressed asset resolution. The pandemic has increased operational challenges for the various parties involved in a corporate insolvency resolution process (CIRP), which resulted in limited cases yielding a resolution plan,” ICRA said. “Further, the suspension of new proceedings under the IBC for the entire fiscal resulted in a sharp slowdown in the resolution process,” it added.

“As per our estimates, the financial creditors could realise about ₹550-600 billion in FY22 through successful resolution plans from the IBC,” said Abhishek Dafria, vice president and group head, Structured Finance, ICRA.

“The increase in the resolution amount in FY22 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,” said Abhishek Dafria, VP and group head, Structured Finance, ICRA.

In FY22, realisations by the financial creditors would depend on successful resolution of 8-9 big-ticket accounts, ICRA said. “However, large accounts mostly see a very high level of delay in closures due to litigations, which is a concern,” it added.

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