Banks are going slow in filing large new cases at the National Company Law Tribunal (NCLT) and observing the current progress of the 12 large accounts in the insolvency proceedings.
In June, the Reserve Bank of India (RBI) had identified 12 large corporate non-performing assets, accounting for 25 percent (about Rs 1.7 lakh crore) of the total bad loans in the banking system, to be immediately referred to the NCLT under the Insolvency and Bankruptcy Code (IBC).
Over the course in July and early August, except for Era Infra Engineering, 11 cases have been admitted by the NCLT and in most accounts, banks have appointed an insolvency resolution professional (IRP) taking up management control of the companies.
NCLT is the arbitration authority for cases filed under the IBC.
Last month end, the central bank sent out a second list of about 30-40 defaulters to commercial banks to start the process of debt resolution before initiating bankruptcy proceedings.
A senior State Bank of India official said, “We are yet to file the cases from the second list. The RBI has given us time till December and we are still waiting to see some progress in the account filed from the first list.”
In a letter, the central bank said these accounts should first be resolved through any of RBI’s schemes before December 13, failing which cases should be filed against these companies under the IBC at the NCLT before December 31.
These are accounts where 60 percent of the outstanding amount was classified as non-performing on the books of banks as of June 30.
Videocon Industries and JP Associates (JAL) are the two large firms among the second list’s 28 defaulters, accounting for over Rs 1 lakh crore of debt.
An official from Deloitte said, “There is progress in the 12 accounts filed and banks are filing some small accounts with the NCLT but they will wait for some more progress in the large cases. Most existing cases have seen the appointment of the IRP and there are buyers coming up but bigger cases would require regulatory support. Also, when professionals take charge, they have to be sure of the due diligence and the steps they take.”
Also, with many cases such as Essar Steel, Innoventive Industries and Jaypee Infratech having moved to the High Courts and the Supreme Court, bankers are hopeful of the insolvency proceedings to see some delay.
A senior private bank executive said that admitting cases in the NCLT is like a ticking time-bomb; once admitted the deadline starts and the creditors would need to find a buyer within 6-9 months or liquidate the firm, which can be a lose-lose for both the banks and the companies.
Additionally, bankers are also worried about the provisioning requirement in the accounts that have been referred to the NCLT. Towards the 12 accounts in the first list, the RBI has already asked banks to make 50 percent provisions for secure exposure, and 100 percent in case of unsecured exposure.
Meanwhile, banks are looking at a 50-60 percent hair-cuts on such accounts.
This will ensure banks tread cautiously on the path of insolvency in order to recover the maximum from the corporates who have defaulted on the loans.
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