Bankers are struggling to find out-of-court resolutions and will soon move involvency courts by this year end to file cases worth over Rs 1.5 lakh crore
Bankers are struggling to find out-of-court resolutions and will soon move involvency courts by this year end to file cases worth over Rs 1.5 lakh crore, accounting for a large part of the nearly 30 non-performing assets (NPAs) in the second list identified by the Reserve Bank of India.
Most NPA accounts have not seen the expected resolutions through direct discussions or through the RBI’s various mechanisms, bankers said.
After 12 NPA cases listed in June, the central bank had come out with a second list comprising about 28-30 accounts to be taken to the National Company Law Tribunals (NCLTs) for resolutions under the Insolvency and Bankruptcy Code (IBC). The RBI had asked banks in an email to resolve them outside of the NCLT before December 13. If they failed to do so, the accounts will mandatorily have to be taken to the NCLTs by end of December.
Within this list, which had the potential of being resolved outside the NCLT, only four or five are likely to be resolved outside the insolvency process, bankers said.
A top public sector bank said that there are discussions taking place for the extension of a deadline but he was not sure if there is any formal proposal sent by banks or IBA (Indian Banks’ Association). "Some of the cases like Jayaswal Neco Industries and Soma Enterprise are still being discussed under the scheme for sustainable structuring of stressed assets (S4A). More clarity on the resolutions is being awaited.”
Extension of deadline?
Informally, many banks are also asking to extend the deadline so far; there has been hardly any success to resolve the listed borrowers through discussions outside of the NCLT.
A senior State Bank of India official told Moneycontrol, “We have not asked for an extension but have not found any resolutions either. It is a difficult task.”
The 28-30 accounts will add to the 12 large accounts, of which 11 are admitted with various NCLTs and are currently in the evaluation stage to get new buyers. Jyoti Structures, the first to be admitted under the IBC in July, will run out of the six-month moratorium time in January 2018 and is expected to seek a three-month extension till April.
Some of the players in the second list include: Jaiprakash Associates (gross debt Rs 67,977 crore), Videocon Industries (gross debt of Rs 47,554 crore), IVRCL (Rs 10,107 crore), Uttam Galva Steels (Rs 4,150 crore), Soma Enterprises (Rs 1,895 crore) and Asian Colour Coated Ispat (Rs 3,019 crore), among others.
SBI Chairman Rajnish Kumar, last month, said, “Almost the entire list will go to the NCLT. By March, the directions would be determined for the cases in first list. The whole strategy around corporate cases, more and more will probably be referred to the NCLT.”
Out of Court
In the case of Videocon, lenders have agreed to consider a one-time settlement scheme but no concrete plan was on offer. In November, the group had concluded the sale of its appliances business Kenstar to private equity firm Everstone.
In case of Jaiprakash Associates, lenders are in talks with the promoter to consider a 'deep restructuring' plan. The company has been in discussions with its lenders to demerge different portions of its business, to help it sell off some assets and deleverage its balance sheet, reports suggested.
One of the listed accounts, Orchid Pharma, with exposure of about Rs 3,200 crore, has been admitted at the Hyderabad bench of the NCLT in August this year, after one of its lenders, Lakshmi Vilas Bank had filed an insolvency plea against the firm.
Similarly, Ruchi Soya Industries, is facing insolvency petitions from Standard Chartered Bank and DBS Bank filed in September at the Mumbai bench of the NCLT.
The RBI requires banks to provide at least 50 percent of secured loans and 100 percent against all unsecured exposures in insolvency cases. Since, many cases in the list have been NPAs in the banks’ accounts, there will be little hit on their capital so as to make additional provisions against them if admitted under the IBC.
After filing at the NCLT, it requires to be admitted after which a resolution professional (RP) takes over the management and operations of the company and Committee of Creditors (CoC) along with the RP have to come up with a sustainable resolution plan within 180 days, extendable up to 270 days. Failing which, the company goes into liquidation.Currently, the banking sector is battling gross NPAs of nearly Rs 8.5 lakh crore at the end of the September quarter.