The resolution of corporate insolvency resolution proceedings (CIRPs) would be impacted in FY21 due to a drop in the number of CIRPs yielding a resolution plan and a rise in haircuts lenders may have to take.
Commenting on the lower realisations Abhishek Dafria, Vice President, Icra, said the pandemic has thrown up new operational challenges for various parties involved in a resolution process. This could limit the number of cases yielding a resolution plan, especially in Q1FY21.
The year gone by (FY20) had large-sized non-performing assets successfully concluding the CIRPs. A successful resolution of a large housing finance company is going to be the key determinant of the amount financial creditors would realise in this financial year.
The ratings agency said realisations from resolution plans could further suffer in the next financial year (FY22) as fresh insolvency proceedings have been suspended for one-year period. New insolvency proceedings initiated in FY22 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, it added.
The time required for successfully concluding a CIRP would also increase. Besides the lockdown period, creditors need to provide additional time to bidders for due diligence. Also, in case of unsatisfactory bid results, may have to go for extension of bid timelines or for further rounds of bidding, Icra said.