Bankers Prepare To Send Nearly Rs 1.8 Lakh Crore In Loans To NCLT
Loans worth nearly Rs 1.82 lakh crore are at risk of entering the insolvency and bankruptcy process this month, three bankers with direct knowledge have confirmed. According to these bankers, this is the approximate exposure which banks have against the 29 corporate accounts which form the second list of stressed assets created by the Reserve Bank of India, most of which will have to be admitted under the insolvency process.
These firms will add to the 12 large accounts which were referred for resolution under the Insolvency and Bankruptcy Code in June this year at the direction of the RBI. Following this, another list of accounts had been sent to banks to try and resolve by December. If they failed to do so, banks were asked to refer these to the IBC too.
Resolution plans have been tough to finalise. As such, most accounts will be referred for Insolvency proceedings, said the bankers quoted above.
Three of the largest accounts which feature in the second list have a combined exposure of about Rs 70,000 crore, which is about 40 percent of the total domestic bank exposure towards the list. These three cases include IVRCL Ltd. (Rs 10,900 crore), Videocon Industries Ltd. (Rs 28,500 crore) and Jaiprakash Associates Ltd. (Rs 29,100 crore).
Emails sent to IVRCL, Videocon and Jaiprakash Associates seeking details on the resolution process were not answered.
According to bankers quoted above, IVRCL and Videocon are expected to go into the insolvency process as promoters have not submitted concrete plans so far.
In the case of Videocon, lenders have agreed to consider a one-time settlement scheme, one of the lenders quoted above said. However, there has been no such offer placed on the table so far, he added.
In November, the group had concluded the sale of its appliances business Kenstar to private equity firm Everstone. The asset sale was an attempt by Videocon to reduce its debt burden of over Rs 43,000 crore.
In case of Jaiprakash Associates, lenders are in talks with the promoter to consider a 'deep restructuring' plan, which can be used to resolve the asset. The company has been in discussions with its lenders to demerge different portions of its business, so that it may sell off some assets and deleverage its balance sheet.
Should most of the accounts included in the second list also go to the National Company Law Tribunal, nearly Rs 4 lakh crore in bad loans would have been referred for insolvency under directions from the RBI. This is nearly half the size of the current stock of bad loans with banks. Gross non-performing assets of the listed banks alone stood at Rs 8.4 lakh crore at the end of the September quarter.
Bankers that BloombergQuint spoke to said that attempts at resolution outside the IBC have not been successful.
At a gathering of lenders earlier this year, 11 accounts were identified within the second list of 29, which had the potential of being resolved outside the NCLT, the bankers quoted above said. However, after months of attempts, only four or five are likely to be resolved outside the insolvency process.
According to lenders, action has already been initiated in some of the other accounts such as Orchid Pharma Ltd., where the domestic lenders have an exposure of about Rs 3,200 crore. The Hyderabad bench of the NCLT had admitted the case in August this year, after one of its lenders, Lakshmi Vilas Bank had filed an insolvency plea against Orchid Pharma.
Similarly, in case of Ruchi Soya Industries Ltd., lenders such as Standard Chartered Bank and DBS Bank had filed insolvency petitions in September. The case was admitted by the Mumbai bench of the NCLT on Friday, two people in the know have confirmed. The soya products manufacturer, in November, had agreed to sell 51 percent stake to Devonshire Capital. It is not immediately clear what this insolvency case could mean for this deal.
However, lenders may not face as big a provisioning hit in the second list, after invoking the insolvency and bankruptcy code, as did in the first list. The RBI requires banks to provide at least 50 percent of secured loans and 100 percent against all unsecured exposures in insolvency cases.
Bankers say that a number of cases which feature in the second list are accounts which have been NPAs for some time. This could mean that there may already be considerable provision made in these assets. Once they are admitted by the NCLT, banks would be required to provide only the incremental amount.
Banks have been given time till the end of this financial year to adequately provide against the second list. This is a shorter timeframe that what they received when the first list of accounts was being admitted.
Once these cases are admitted, the committee of creditors and the resolution professional appointed in the matter have up to 270 days to come up with a sustainable resolution plan and implement it. A recent ordinance by the government has ensured that defaulting promoters will find it very difficult to participate in this process, unless they clear some of their dues.