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2nd Wave Of Covid-19 Could Delay Resolutions & Increase Haircuts: ICRA


The outbreak of the Covid-19 pandemic and its related effects in FY2021 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 has stated.


Further, the suspension of new proceedings under the Insolvency and Bankruptcy Code (IBC) for the entire fiscal resulted in a sharp slow-down in the resolution process. Accordingly, the realisation for financial creditors from the resolution of CIRPs under the IBC declined significantly in FY2021 with a total resolution amount of ~Rs. 260 billion, almost a quarter of the realisations in FY2020.

2nd Wave Of Covid-19 Could Delay Resolutions & Increase Haircuts: ICRA

Commenting on this, Mr. Abhishek Dafria, Vice President and Group Head - Structured Finance, ICRA, says, "As per our estimates, the financial creditors could realise about Rs. 550-600 billion in FY2022 through successful resolution plans from the IBC. However, the increase in the resolution amount in FY2022 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.


Additionally, in FY2022, the realisation by the financial creditors would depend on the successful resolution of 8-9 big-ticket accounts, as more than 20% of ICRA's estimated realisation for the year could be from these alone. However, large accounts mostly see a very high level of delay in closures due to litigations, which is a concern.

Further, if the second wave of the pandemic does not subside soon, it could have a bearing on our estimates as the difficult operating environment may result in a slowdown in the resolution process, especially for smaller- sized entities, and would also result in an increase in the haircuts for the lenders." The CIRPs under the IBC have been affected over the years by the overburdened National Company Law Tribunal (NCLT), innumerable litigation, defiant promoters and failing sectors. Even with such challenges, the IBC process has shown significant progress. From its commencement in December 2016, 4,376 CIRPs have been admitted, of which 2,653 were closed till March 2021.

Read more about: covid 19 icra
Story first published: Monday, June 7, 2021, 17:53 [IST]
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