Banks step up asset sale to ARCs as insolvency process gets delayed

“We are going for fire sale now, almost Rs 10,000 crore is up on sale. We will also look at putting up Rs 1,500 crore of Essar Steel. Price discovery is over, so it would not be wise to wait now. We are ready to sell whatever we get on a cash-basis. As the process can get delayed and we do not even get an interest on it,” said a senior executive at one of the banks.

Another senior public sector banker said, “We ought to start making recoveries to boost our profits. Banks cannot be sitting on NPAs (non-performing assets) and wait for the insolvency process as it keeps getting delayed.”

The sale process also comes after the Supreme Court asked banks to not proceed with the insolvency process for assets in the power, shipping, textile and sugar sectors.

In the first quarter of 2018-19, the state-owned banks cumulatively made a total recovery of Rs 36,551 crore, almost half of the entire 2017-18. As a large share of this recovery was contributed by the sale of Bhushan Steel under insolvency, and because the rest of the resolution processes are stuck, banks are worried about the recoveries going forward.

Banks are also bleeding with heavy losses in their quarterly financial results, though an improvement was seen in the first quarter of 2018-19. Losses declined from Rs 62,682 crore in Q4 2017-18 stood, to Rs 16,617 crore in the April to June period.

SBI has now put up Essar Steel’s exposure of Rs 12,000 crore on sale after it withdrew last week. Apart from that, Rohit Ferro Tech (Rs 1,320 crore), Indian Steel Corporation (Rs 929 crore) Bilt Graphic Paper Products (Rs 270 crore), Jai Balaji Industries (Rs 859 crore) and Sona Alloys (Rs 649 crore) among others, are up for sale to ARCs, according to a notice on its website.

Most of the offers are on at least 50 percent cash basis and these accounts are either facing insolvency or are in the process of being admitted under the Insolvency and Bankruptcy Code (IBC).

In June, Bank of Baroda had moved to sell its Rs 1,200-crore exposure in Essar Steel to Hong Kong-based loan and bond trading firm SC Lowy. It is now planning to sell its exposure of about Rs 300-400 crore to Bhushan Power.

Punjab National Bank has put nearly two dozen non-performing accounts (NPAs) on sale to recover over Rs 1,320 crore.

Since September 12, Bank of India has put on sale its NPAs including exposures to Essar Steel, Bhushan Power and Alok Industries, amounting to Rs 10,000 crore.

All three accounts, part of the Reserve Bank of India’s (RBI) first list of 12 large NPAs to be referred to the insolvency courts, remain unresolved over a year since the list was issued amid several rounds of litigation.

So far, of the 12 cases, resolutions have reached a final closure only in the cases of Bhushan Steel, Electrosteel Steels and Monnet Ispat & Energy.

Essar Steel tangle

Currently, Essar Steel has attracted bids that are almost 90 percent of the loan amount. The bids are led by ArcelorMittal, which has offered Rs 42,000 crore. The company is now fighting a case in the Supreme Court on its eligibility aspect. The asset has undergone several rounds of litigations since last year in August when it was filed in the NCLT.

A senior official from Bank of India said this delay for Essar Steel is worrisome as the liquidation date is approaching on October 11.

Indian Overseas Bank had earlier sold its Rs 1,600 crore-loan exposure in Essar Steel to Edelweiss Asset Reconstruction company.

As on September 10, Edelweiss ARC accounted for Rs 14,666 crore of the Rs 49,394-crore worth claims of all Essar Steel’s financial creditors put together.

“Yes, the offers on sale by banks have substantially increased. Most bankers are apprehensive about the way the resolution process is progressing. They are also under pressure to clean up their books. Yet, it remains to be seen how much will be sold by them as the pricing mismatch still remains,” said the chairman of an ARC.