Beena ParmarMoneycontrol BureauAmid legal agencies investigating bank officials on loan sanctions, bankers fear taking hair-cuts on bad loans. Now, lenders seek more teeth to resolution mechanisms in order to get a fair a deal on their bad loans.
According to a senior bank official with a Mumbai-based public sector bank said, “After the Kingfisher episode, it is becoming difficult to get all banks on board. Bankers are worried they might be questioned on their decisions…Taking hair-cuts is still a taboo.”A hair-cut is a discount banks have to bear on selling their bad loans.
The Central Bureau of Investigation has arrested five former IDBI Bank officials and four Kingfisher Airlines officials relating to the IDBI Bank’s Rs 1,300 crore loan default case.
Another senior large public sector bank official handling stressed assets said, “We are working on a number of cases. A consortium is a long-drawn process and we need co-operation from the borrowers, too. The existing schemes need more strength as we lose out on the pricing factor.”
Existing mechanisms initiated by the Reserve Bank of India have already seen a few modifications but to no avail as banks are often required to take major cuts on their loans and borrowers use delaying tactics given the limited time period of less than two years given to banks under various schemes.
Starting with Corporate Debt Restructuring (CDR), Joint Lenders’ Forum (JLR) which empowers smaller lenders, Strategic Debt Restructuring (SDR), 5:25 refinancing scheme and the latest S4A or the Scheme for Sustainable Structuring of Stressed Assets have not seen any major success rates.
Bankers say they are currently looking at multiple loan accounts to be resolved under the SDR and S4A but are yet to find the right buyers and management change due to resistance from existing management and fear of legal ramifications.
A few stressed assets funds which forged tie-ups with banks last year are yet to make headway.
SBI Chairman Arundhati Bhattacharya, in the post results interaction, said, “No deal in the Brookfield tie-up is close to closure yet. They are evaluating proposals and probably early next year, one or two deals could be closed.”
On the government proposed bad bank, Public Sector Asset Rehabilitation Agency (PARA), she said, “Anything that helps put stressed assets back (on track) is welcome. We need capital on the bad bank front and the government has to take that decision.”
The RBI Deputy Governor Viral Acharya also approved the idea to set up PARA “if designed properly.” “The big piece of the problem is - can you get banks to sell the assets at the right price to ARCs (asset reconstruction companies) and private investors who want to come in? How to get that right price to come in using a portfolio or a bad bank kind of approach? I think that’s going to be key.”
The Economic Survey of 2016-17 pointed out the persistence of the twin balance sheet problem—over-indebtedness in the corporate and banking sectors.In a clear message to the government to help resolve up to nearly 15-20 percent of stressed loans, the Survey said such a resolution will require “difficult decisions about burden-sharing and perhaps even forgiving some burden on the private sector”.
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