Moneycontrol
Jul 15, 2017 03:46 PM IST | Source: Moneycontrol.com

This week in banking: RBI Guv talks on demonetisation, 2 pvt banks post results; insolvency hiccups continue

Apart from two private sector banks reporting their financial results, resolution of NPAs in the insolvency courts met with a lot of action during the week with Essar Steel in focus for future course of action for other stressed companies.

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The quarterly earnings season kicked off in the week gone by with two private sector banks IndusInd Bank and South Indian Bank reporting their first quarter numbers for the financial year 2017-18.

The mid-sized lender IndusInd reported profit-after-tax of Rs 836.55 crore with a growth of 26 percent on a year-on-year basis. This was driven by 31 percent growth in net interest income (NII).

Kerala-based small private sector South Indian Bank reported a 6.7 percent rise in net profit at Rs 101.47 crore in the April to June period.

Further, the weak public sector lender IDBI Bank, which is also under RBI’s prompt corrective action (PCA), also published its divergence of Rs 6,816 crore in reporting of gross non-performing assets in comparison to RBI’s classification.

Urjit Patel on demonetisation

Appearing before a Parliamentary Committee on demonetisation, RBI Governor Urjit Patel said the central bank employees are working "round the clock" and staff holidays have been cut to complete counting of currency notes which returned to the system.

Patel also said the banking regulator is keeping a close watch on transactions involving cryptocurrencies.

NPA resolutions

On the reforms to resolve non-performing assets (NPAs), many companies including Bhushan Steel and Bhushan Steel and Power of the 12 NPA or bad loans accounts directed by RBI on June 13, were taken to insolvency courts at the National Company Law Tribunal (NCLT).

Essar Steel continued its fight in the Gujarat High Court against the RBI’s June 13 directive and the verdict is expected on Monday after three adjournments.

The Gujarat High Court heard the Reserve Bank of India (RBI), which said it has not singled out Essar Steel for insolvency proceedings among other big defaulters with over Rs 5,000 crore of outstanding loans.

Additionally, more defaulting companies may re-designate promoters to core managerial functions in order to be a part of the resolution process under the Insolvency and Bankruptcy Code. Bankers say action may be taken if the resolution process is disrupted.

In the last couple of weeks, at least three of the 12 companies that were sent for immediate resolution at the National Company Law Tribunal (NCLT), including Bhushan Steel, Amtek Auto, Era Infrastructure Engineering, have seen immediate changes in their top management with quick changes in promoters taking up managerial roles.

Delays reduce resolution chances

Such delays and interferences, caused by Essar Steel to delay the process at NCLT, could increase losses and reduce the chances of resolution, according to Rajnish Kumar, Managing Director of SBI.

In another case going on at the NCLT, SBI rejected a bid by the Sajjan Jindal-led JSW Group to take over assets of the debt-laden Monnet Ispat and Energy, as the bank counsel told the NCLT on Thursday that the bid is not acceptable in its current form.

Moreover, sub-contractors of Lanco Infratech, one of the 12 stressed companies identified by the RBI as eligible for bankruptcy proceedings, are likely to take legal action against the company for "illegal" invocation of their bank guarantees.

Lanco, with a debt of about Rs 44,000 crore, is one of the first ones to be taken to the insolvency court last month.

Only last week, New Delhi-based Hindustan Powerprojects' had encashed bank guarantees of Lanco Infratech worth Rs 500 crore after it had alleged incomplete contractual obligations at the latter’s 2,520 MW Anuppur thermal power plant.

PwC in the dock?

In a separate action, former Chief Justice of Delhi High Court AP Shah has written to PM Narendra Modi and Finance Minister Arun Jaitley to take immediate action against PricewaterhouseCoopers (PwC) India for allegedly posing threat to national interests. Shah heads the Citizens Whistle Blowers Forum (CWBF).
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