Bankers Race To Resolve Rs 3.8-Lakh-Crore Bad Assets Before Monday Deadline

With the six-month deadline set by the Reserve Bank of India to finalise resolution plans for about 70 large stressed accounts worth over Rs 3.8 lakh crore ending tomorrow, banks are burning midnight oil to avoid bankruptcy proceedings against these defaulters who are mostly power producers.

Bankers prefer out-of-NCLT resolution as the bankruptcy resolution so far have seen them taking large haircuts, which in cases like Alok Industries was a whopping 86 percent.

The RBI circular asks banks to identify projects with even a day’s default as stressed assets, and conclude resolution proceedings in 180 days. The circular came into effect on March 1 and the 180-day deadline concludes on Aug. 27.

If no resolution is reached by Monday, these accounts, which also include some engineering-procurement-construction and telecom companies, will have to be referred to the National Company Law Tribunal to initiate bankruptcy proceedings, the RBI had said.

Banks are trying to come up with a resolution plan for these accounts as going to the NCLT will mean large haircuts. It can be noted that almost three-fourths of these Rs 3.8 lakh crore-worth stressed assets are power companies which had dragged the central bank to the Allahabad High Court where the matter is still pending. That the matter is sub-judice also gives bankers some confidence that they may get some more time to resolve them out-of-court.

“A few banks have sanctioned resolution plans for some cases and others are in the process of doing so,” said an executive director of a state-run bank who sought not to be named.

Most banks are having their board meetings to approve a resolution plan or a management committee meeting to sanction credit to these defaulting companies on Monday, he said.

Last week, State Bank of India Managing Director Arijit Basu said about eight power projects worth Rs 17,000 crore were expected to be resolved soon as lenders were nearing consensus on these accounts.

“We have looked at 13-14 accounts which would entail changes in the managements, investment, etc. Of these, we are looking at seven to eight accounts very closely, to get some consensus among banks,” Basu had said.

Bankers, however, said the exact number of accounts where resolutions have been arrived at, or the number of cases that will be referred to NCLT,  will be known only by Monday evening.

There are reports that lenders have identified at least 60 NPA accounts worth Rs 3.5 lakh crore against whom bankruptcy proceedings will be initiated.

Seventy large accounts, mainly from power, EPC and telecom with a total exposure of Rs 3.8 lakh crore, would require resolution by Sept. 1 according to the RBI’s Feb. 12 circular, a recent ICRA report said.

Bankers hope that the RBI may show some leniency in regard to these accounts by not asking them to refer all of them to the NCLT immediately after the Aug. 27 deadline as it knows that in some of the cases resolution process is underway.