New Delhi: As many as 60 corporate loan defaulters are staring at the prospect of being dragged to the bankruptcy tribunal by lenders as the 180-day grace period granted by the Reserve Bank of India’s February 12 circular ends on Monday.
These borrowers together owe more than Rs 3 lakh crore to banks and financial institutions.
Bombay Rayon, Gitanjali Gems, Gayatri Projects, Patel Engineering, Gammon India, GTL Infrastructure, Punj Lloyd, Reliance Defence & Engineering, Bajaj Hindusthan, Pratibha Industries, and McNally Bharat Engineering Co are among 60 companies on lenders’ hit list.
The RBI’s new circular on identification and resolution of non-performing assets (NPAs) has terminated all restructuring schemes and given a 180-day tighter deadline for implementation of a resolution plan. Failing that, lenders have no option but to drag defaulters to the National Company Law Tribunal (NCLT) for recovery of loans.
The deadline ends on Monday. After that, banks have to move the NCLT if out-of-the-court settlement is not reached with borrowers.
Lenders have taken big cuts for settlement of loan accounts in cases that have gone to the NCLT. So, they prefer a negotiated settlement to other non-performing loan accounts rather than move the insolvency court. However, the RBI diktat cannot be ignored.
State Bank of India (SBI), the largest public lender, said it is in an advanced stage of negotiations with borrowers to resolve seven to eight power sector loan accounts worth about Rs 17,000 crore.
But other lenders have not reported any headway in negotiations with borrowers, meaning they will now have to move the NCLT.
This will be the third set of NPAs that are dragged to the bankruptcy court under the IBC. Some 40 corporate defaulters have already been taken to the NCLT by lenders – 12 in the first batch and 30 in the second one.
Under the Insolvency and Bankruptcy Code (IBC), once a case is admitted by the NCLT, promoters lose control of the assets. The interim resolution professional (IRP) that takes charge of the assets must come out with a resolution plan within 270 days. Failing that, the assets will go into liquidation.
As many as 701 cases have been admitted for resolution across various benches of NCLT, according to the RBI’s biannual Financial Stability Report released in June.
Power sector repreive
Power sector defaulters, however, have got a breather as the Allahabad high court is hearing petition challenging the RBI’s circular.
RBI had moved the Supreme Court seeking a stay on Allahabad high court proceedings. However, the apex court refused to intervene in the matter. It will again hear this case on Tuesday.
The Allahabad high court has completed hearing on the RBI circular and reserved its order.
The Parliamentary Standing Committee on Energy has confirmed that investments of Rs 1.75 lakh crore in private power generation are at the risk of being declared NPAs. It has identified fuel shortage, delay in payment by power distribution companies (discoms) and regulatory difficulty in obtaining approval for recovery of extra costs by developers due to conditions amounting to “change in law” as key reasons for generators’ precarious financial health.
The banking sector’s bad loan problem has acquired alarming proportions in recent years.
As much as Rs 5 lakh crore of bank loans turned into NPAs in 2017-18, taking total slippages to Rs 13.6 lakh crore, as per data compiled by rating agency Crisil.
Nearly a fifth of the slippages that happened in 2017-18 are attributed to the RBI’s February circular.
The banking sector’s gross NPAs increased to Rs 10.3 lakh crore at the end of March this year from Rs 8 lakh crore a year ago.
Last fiscal, the banking system reported net loss of Rs 40,000 crore as NPAs rose sharply, increasing provisioning costs for banks.
Public sector banks bore the brunt.
However, higher provisioning and the consequent losses have materially eroded the Rs 1.2 lakh crore of capital raised by public sector banks last fiscal, of which Rs 90,000 crore was from the government, Crisil said.
The RBI has started cracking the whip on banks to expedite recovery of loans. The new circular issued by it in February is part of this strategy.
The new circular makes its mandatory for lenders to identify even one day’s delay in repayment by borrowers as incipient stress in loan accounts.
Under the new framework, all lenders are required to put in place board-approved policies for resolution of stressed assets, including timelines for resolution. As soon as there is a default in the borrower’s account with one bank, all lenders must initiate steps to cure the default, either individually or collectively.
If a loan is restructured as per the resolution plan, the asset will remain sub-standard in the books till 20% of the loan is repaid. However, no provisioning is required when there is a change in ownership of stressed assets.