RBI-Identified 12 Stressed Accounts Likely To Be From Steel, Power, Infrastructure Sectors
Analysts see banks’ earnings risk from additional provisioning needs towards resolution.
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The 12 large stressed accounts identified by the Reserve Bank of India for resolution under the Insolvency and Bankruptcy Code are likely to be from the steel, power and infra sectors, the biggest contributors to bad loans.
Half of UCO Bank’s non-performing assets come from these sectors, besides roads and textile, its Managing Director and Chief Executive Officer RK Takkar told BloombergQuint.
The central bank’s internal advisory committee on Tuesday identified the dozen accounts classified partly or wholly non-performing from among the top 500 exposures in the banking system. The committee was formed after an amendment to the Banking Regulation Act allowed the central bank to issue specific directions to banks on resolution of stressed assets in India, which at 17 percent of total loans are the highest among major economies.
The 12 accounts, which make up a quarter of India’s bad loans, were recognised as non-performing assets at least a year back and banks would have already set aside provisions for them.
Brokerages CLSA and Credit Suisse see an earnings risk for banks from additional provisioning requirements towards resolution and haircuts.
Takkar, however, said UCO Bank has made provisions of up to 40 percent in certain accounts. Incremental provisioning needs will depend on a case-to-case basis once the names of the 12 accounts are out, he said.
Banks have requested the RBI to give us some leverage to spread the provisioning requirement over a few quarters or if we can get some forbearance.RK Takkar, MD & CEO, UCO Bank
The 12 identified cases will be referred to the National Company Law Tribunal for resolution. If that doesn’t happen within six months, liquidation will follow.
It would bring the borrower to discussion table so that he (the borrower) doesn’t demand for abnormal haircuts, NS Venkatesh, chief financial officer, Lakshmi Vilas Bank Ltd., told BloombergQuint. The lender’s exposure to the stressed sectors remains limited given its higher retail exposure.
UCO Bank’s Takkar said the resolution of the 12 accounts could involve a haircut of close to 50 percent, considering that earlier attempts under the S4A scheme had pegged the non-sustainable portion at the same level.
The RBI has also given banks six months to formulate a resolution plan for other NPA accounts apart from the 12 identified by it on Tuesday. “These 12 accounts will determine how the path forward will be. It will lay the broad contours and guidelines under which the other accounts could then get resolved fast,” Venkatesh said.