Bankers Ready For Marathon Huddles As Insolvency Deadline Nears
Bankers to come together for marathon meetings ahead of December 13 deadline.
Indian lenders are gearing up for marathon meetings to find a resolution to 30 stressed accounts named in a second list by the central bank with about five weeks left to the December 13 deadline, three bankers in the know told BloombergQuint requesting anonymity.
The lead banks will call meetings in the latter half of this month to find ways to implement the available restructuring tools, the bankers quoted above said. They will also ask promoters to submit sustainable resolution plans so that they could consider the best available options.
Such marathon meetings have now become commonplace for Indian lenders as they try to project a united front when dealing with errant corporate borrowers, largely responsible mounting stressed loans. Bankers first had long sessions in March last year after the Reserve Bank of India’s asset quality review five months earlier forced them to recognise bad loans. Gross non-performing assets of all Indian banks have since doubled to over Rs 8 lakh crore, as of June 30.
Similar meetings preceded their decision to approach the National Company Law Tribunal to initiate insolvency proceedings against 12 companies – contributing about a quarter of bad loans – identified by the central bank in June. The first list followed a government ordinance giving the central bank more powers to resolve bad loans.
For the second list, lenders were given time to come up with resolution plans before initiating insolvency proceedings. Tools at their disposal include the Strategic Debt Restructuring, the Scheme for Sustainable Structuring of Stressed Assets, operational restructuring through asset sale and sale of loans to asset reconstruction companies, the bankers quoted above said.
To help their cause, companies are already trying to find ways to monetise assets. On Monday, the Everstone Group agreed to buy the Kenstar brand of consumer electronics firm Century Appliances Ltd., an associate of the Videocon Group, for an undisclosed sum. Last week, Ruchi Soya Ltd. said it had agreed to sell 51 percent stake to a private equity firm, Devonshire Capital, for Rs 4,000 crore.
Videocon, with a total debt of about Rs 45,000 crore and Ruchi Soya with Rs 12,000 crore, are both said to be part of the second list.
To be sure, there is no restriction on invoking the Insolvency and Bankruptcy Code in the 30 cases before the December 13 deadline. Yet, lenders may look at it as the last resort since the provisioning requirement against such cases would be very high.
Banks would need to set aside 50 percent of secured exposure and 100 percent of unsecured loans in cases where insolvency proceedings are initiated, according to an RBI communication in June. For the first dozen accounts, banks were given three quarters to spread additional provisions. The regulator has not clarified whether such amortisation will be applicable to other insolvency cases.
While the cases on the second list don’t have massive outstanding debt like the first dozen, they are still considerably large and the provisions would hurt banks’ profitability, the bankers quoted above said.
Banks That Have Disclosed Exposure To The Second List
- Axis Bank informed exchanges on September 1 that it had an outstanding exposure of Rs 2,492 crore against cases on the second list. Of this, 75 percent was secured and the bank had set aside Rs 862 crore.
- Yes Bank said it had an exposure of nearly Rs 1,100 crore to the accounts and has set aside 39 percent of the outstanding.
- State-run Union Bank of India, while announcing earnings for the September quarter, said it had an exposure of Rs 4,792 crore to the second list and has set aside Rs 1,498 crore, or 31 percent.
- ICICI Bank said that it had an exposure of Rs 10,476 crore, against which it had provisioned Rs 3,299 crore, or 31.5 percent of the outstanding.