In May 2017, the government empowered the Reserve Bank of India to take decisions on individual bad loan accounts. In the months that followed, the RBI sent banks two lists of stressed accounts, that needed to be resolved using the Insolvency Code.
The first list had twelve accounts. Two of these have been resolved. The remaining 10 have been admitted for insolvency and are at various stages of resolution.
The progress in resolving the 29 accounts put on the second list of stressed accounts has been equally slow.
This list was sent by the RBI to banks in August 2017. Banks were given until December 2017 to finalise a resolution plan for these accounts, failing which these companies were to be referred for insolvency.
According to data collated by BloombergQuint, only four out of the 29 stressed accounts in the second list are near resolution. Eleven accounts have been admitted for insolvency, while the remaining 14 are either facing delays due to litigation or are yet to be referred to the National Company Law Tribunal for insolvency proceedings. The data was collected from NCLT and stock exchange filings.
Together, the accounts in the second list had outstanding loans worth over Rs 1.8 lakh crore, BloombergQuint has reported.
The Resolution Candidates
Ruchi Soya Industries Ltd, Monnet Power Company Ltd, Jayaswal Neco Ltd and Soma Enterprise Ltd are the four cases which have seen some progress towards resolution.
In case of Ruchi Soya, two large bidders Adani Wilmar Ltd and Baba Ramdev’s Patanjali Ayurveda have submitted resolution plans, BloombergQuint reported. An auction under the Swiss challenge system will determine which company’s resolution plan is accepted by lenders.
The resolution professional appointed for Monnet Power Ltd has received interest from JSW Energy Ltd and the Adani Group after Expressions of Interest (EOI) were sought. A decision is pending.
Soma Enterprise Ltd and Jayaswal Neco Ltd saw their promoters successfully striking restructuring deals with their bankers before the December 13, 2017 deadline. They were, thus, able to escape insolvency proceedings.
Cases Admitted For Resolution
Eleven of the 29 cases have been admitted for resolution. Cases like Videocon Industries Ltd, Videocon Telecommunications Ltd, SEL Manufacturing Ltd have seen admission only in the last few weeks. This could mean that resolution in these cases is still a few months away.
For Hyderabad-based engineering company IVRCL Ltd, the resolution professional has set July 11 as the last date for receiving resolution plans from potential bidders. In the case of the Ruia-family owned Essar Power (Jharkhand) Ltd, the resolution professional has sought EOIs by July 10. The committee of creditors (CoCs) in Castex Technologies Ltd and Coastal Projects Ltd is currently in the process of assessing bids.
The Mumbai-bench of the NCLT has reserved its order in the case of Uttam Galva Metallics Ltd, which is still pending admission.
Cases Facing Legal Delays
A large proportion of cases in the second list of stressed accounts are facing delays.
Jaiprakash Associates Ltd is pending referral to the NCLT since the RBI itself had asked banks to not proceed with the case. This was because the Supreme Court had barred the company’s promoters from selling any assets.
Stressed companies like Asian Colour Coated Ispat Ltd., BILT Graphic Paper Products Ltd., G.E.T Power Ltd., Jai Balaji Industries Ltd. and Visa Steel Ltd. are facing litigation in various high courts, due to which respective NCLTs have stalled insolvency proceedings.
It is unclear when the issues facing these cases will be put to rest, said a senior public sector banker closely involved with the process, speaking on conditions of anonymity. Till that is done, it is unlikely that the IBC will be able to adequately resolve these cases.
A few cases on the list are also facing liquidation either under the IBC or as ordered by a high court. Since the process of liquidation has no fixed timeline, it is unclear when lenders would receive a part of their dues. These cases include Shakti Bhog Foods Ltd., Orchid Chemicals & Pharmaceuticals Ltd. and Unity Infraprojects Ltd.
Lenders have faced longer delays in admitting companies in the RBI’s second list of stressed accounts for insolvency. From the first 12 cases, only Era Infra & Engineering Ltd had faced considerable delays, before being admitted under the insolvency process.
Lenders have also tasted some success in two large cases - Bhushan Steel Ltd. and Electrosteel Steels Ltd. In both these cases, banks are likely to write back a portion of the provisions they had made. The banking regulator had asked banks to set aside at least 50 percent of all secured loans and 100 percent of all unsecured loans when an account is referred for insolvency. These provisions can be written back on recovery.
While progress has been slow in resolution of large accounts, SBI’s research department claims that at least a quarter of cases admitted under the IBC have seen resolution.
There is substantial progress on IBC front. As per the latest numbers available in IBBI, 701 cases were admitted up to March 2018 out of which 25 percent of cases have been already closed. Further, as of March 2018, 12 cases with admitted claim of Rs 4,405 crore were resolved with a realization rate of around 70 percent.SBI Economic Research