Nomura sees 50% haircut by banks in NPA resolution; more risk from farm loan waivers, forced M&A
Nomura believes a majority of resolution will be around right-sizing of debt (around 50 percent haircut) and forcing sale of non-core assets.
Speeding up NPA resolution process by RBI with identifying 12 NPL accounts under the new bankruptcy code is a positive step for banks, Nomura said.
"Banks, instead of just ageing NPAs on their books, will evaluate for a time-bound resolution, failing which there will be a forced liquidation which is also faster under the new Insolvency and Bankruptcy Code (IBC)," it explained.
After the amendment of the Banking Regulation Act, the RBI had formed a committee of independent board members to suggest the names of corporates where resolution could be taken forward by reference to the IBC.
The Reserve Bank of India’s (RBI) appointed committee on Tuesday has identified large accounts for reference of NPAs under the Insolvency and Bankruptcy Code. Of the pool of 500 NPAs as of March 2016, it has identified 12 accounts (each with fund and non-fund exposure of more than Rs 5,000 crore each) and these accounts comprise around 25 percent of the system’s existing NPAs as per the RBI.
For other large NPAs, banks need to finalise a resolution in six months, failing which they will have to also be referred under IBC, Nomura said.
Under the IBC, the creditors have to decide on a resolution plan in 180 days (extendable by 90 days), failing which the National Company Law Tribunal (NCLT) can force the creditor for liquidation.
The research house believes a majority of resolution will be around right-sizing of debt (around 50 percent haircut) and forcing sale of non-core assets.
Nomura said while these were largely expected before, now on these 12 large accounts it expects the haircut decisions faster (180-day limit to decide the resolution process).
Though NPA resolution is positive for banks, incrementally there is risk of farm waivers and forced merger & acquisitions (PSU consolidation), the research house said.