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Resolution through bankruptcy courts to contract by 30-40 per cent: Report

In the current fiscal, successful resolution of a large housing finance company is going to be the key determinant of the extent of amount the financial creditors would realise during the year, Icra said. Housing finance firm DHFL is facing insolvency proceedings as it owes over Rs 80,000 crore to creditors.

, ET Bureau|
Last Updated: Jun 03, 2020, 07.11 PM IST
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Housing finance firm DHFL is facing insolvency proceedings as it owes over Rs 80,000 crore to creditors.
Resolution and recoveries through cases pending in bankruptcy courts may take 30-40 per cent hit this year as courts have stopped accepting new cases. Besides, the outbreak of Covid-19 pandemic and the consequent lockdown creating operational for the on-going cases, according to ratings firm Icra. Suspension of new proceedings under the Insolvency and Bankruptcy Code-IBC- is expected to result in 30-40% dip in realisation to creditors in FY20-21, it said.

Lenders are expected to take a haircut, in the current market conditions. Besides, the number of acceptable resolution plans would also be impacted. Creditors could realise about Rs. 60000 - 70000 crore in FY'2021 through successful resolution plans from the IBC as compared to about Rs. 1 lakh crore in FY'20. "The pandemic has thrown up new operational challenges for the various parties involved in a resolution process. " said Abhishek Dafria, vice president, Icra. "This could result in limited cases yielding a resolution plan, especially in Q1 FY2021"

In the current fiscal, successful resolution of a large housing finance company is going to be the key determinant of the extent of amount the financial creditors would realise during the year, Icra said. Housing finance firm DHFL is facing insolvency proceedings as it owes over Rs 80,000 crore to creditors.

New insolvency proceedings initiated in FY'2022 are unlikely to get resolved in the same fiscal, given the typical average time period seen for corporate insolvency resolution proceedings to conclude with a resolution plan is quite high, Icra said.

On a positive note, suspension of fresh insolvency proceedings for one year would ensure relief for the companies that are severely impacted by the Covid-19 pandemic and are unable to meet payments to their creditors. But if the severity of the pandemic were to increase, then there could be a sudden surge in cases being referred under the IBC after the one-year period, Icra said.
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