Oct 12, 2017 07:47 PM IST | Source:

Banks a stressed lot as promoters of bad a/cs play hardball, buyers bargain

Banks are struggling to make headway in the insolvency proceedings amid non-cooperation from some promoters, even as they try to find buyers for the assets at the right value.

Beena Parmar @BeenaParmar
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Banks are struggling to make headway in the insolvency proceedings amid non-cooperation from some promoters, even as they try to find buyers for the assets at the right value.

Bankers said it is becoming difficult to get shareholder approval in corporate actions such as change in management, changes in capital structure or selling assets with fragmented subsidiaries and reclassifying a company’s promoter as public shareholder, among other things in the large defaulter cases under National Company Law Tribunal (NCLT) process.

Bankers fear that the delay by promoters could erode the value of the assets and hence are in talks with the Insolvency and Bankruptcy Board of India (IBBI) through Indian Banks Association to address problems to revive the large non-performing assets (NPAs).

“Buyers have shown interest but everyone is still waiting to formalise bids and the pricing will be lower due to the insolvency tag. Though the legal process is giving us much more confidence, getting shareholder approval is becoming difficult in cases where there is change in management, reclassifying of a company’s promoter as public shareholder, selling assets or changes in capital structure, etc.,” said a public sector banker involved in discussions.

A senior lawyer with a reputed Mumbai-based law firm said, “Bankers are disheartened with the promoters playing tricks to delay the process. Some promoters are bifurcating one integrated asset into several fragments making it difficult for buyers to bid. Although some promoters are co-operative, most of them would not wish to give away the company they have built over all these years.”

As per a report, banks are also planning to seek regulatory exemption from taking the second lot of defaulters to bankruptcy courts as such proceedings tend to erode the value of assets.

Another senior banker said, “It is very uncertain. We are hoping that we get certain help from the Board and the regulator on provisions as capital is a big constraint especially when our credit growth is weak. Getting the right value of the asset is critical for our recovery.”

In June, the Reserve Bank of India had directed banks to file select 12 large NPA cases, accounting for 25 percent of total bad loans in the industry (about Rs 1.7 lakh crore) to the NCLT under the Insolvency and Bankruptcy Code ( IBC). All 12 cases have been admitted and are undergoing the insolvency proceedings at present.

In August, RBI sent banks a set of about 28-30 large defaulters with loans amounting to Rs 1.25 lakh crore to be sent to insolvency courts by December 31, if a resolution is not found by December 13 under existing mechanisms. This list includes Videocon Industries, Nagarjuna Oil, Uttam Galva and Jaiprakash Associates.

Moreover, the RBI has asked banks to set aside 50 percent provision against the secured portion of these loans and 100 percent provision against the unsecured part.

Bankers have complained that the moment it reaches the insolvency courts and the provisions are set aside, the value of the asset reduces.

Under the IBC, lenders and promoters have to arrive at a resolution plan within 180 days with an extension to 270 days, failing which courts can order liquidation of assets.

Bankers say some of the past resolution efforts under bankruptcy courts show that asset values are a fraction of what’s on their books. For instance, builder VNR Infrastructure, with a loan of Rs 1,000 crore, was valued at just Rs 80 crore. And Innoventive Industries, which defaulted on Rs 1,500 crore of loans, was valued at Rs 140 crore, reports added.

Further, bankers need to get at least two rating companies to provide investment grade to the restructured debt, which could be a tough nut to crack as many companies may not qualify for investment grade rating.
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