SBI Says RBI’s New Framework Won’t Cause A Spurt In Accounts Referred To NCLT 

State Bank of India, the nation’s largest lender, said the Reserve Bank of India’s February circular that even a single-day delay in payment will be tagged as default will have no direct impact on bad loans or provisioning requirements of banks.

SBI doesn’t expect a huge spurt in the number of accounts that will be referred to the National Company Law Tribunal or for insolvency resolution merely because of the RBI’s circular, Arijit Basu, managing director at the bank, told BloombergQuint in an interview. The number of such accounts is not going to be “very significant”, he said, as banks themselves have been taking accounts to the NCLT without waiting for 180 days to lapse.

The RBI has mandated that for loans above Rs 2,000 crore, banks should initiate rectification or restructuring even after a single-day default to ensure that the amount due is repaid. Lenders have 180 days to complete restructuring before an account is referred for insolvency action.

While Basu declined to specify the number of accounts that will likely head to insolvency, a senior official at SBI, while speaking on conditions of anonymity, said that the bank is working with a list of 63 stressed accounts, which would be impacted by the Feb. 12 circular. The accounts consisted of 23 power companies and 40 companies outside the power sector.

Power Sector Stress

SBI was watching 34 power accounts that were facing difficulty but could have been resolved. Of these, eight have already been resolved and are working fine because fuel-supply and power-purchase issues have been sorted out, Basu said. These eight accounts entail a debt of around Rs 35,000 crore.

Another 14 have either been already referred to or are in the process of being admitted to the NCLT, according to Basu. Of the remaining 12, some sort of resolution is in sight for seven, he said.

“So in seven cases, we are in advanced stages of achieving closure, the announcements for which are expected to come in the next 10-15 days,” Basu said. The expected recovery rate in the seven cases, according to him, is “more than 50 percent”.

Non-Power Accounts

In case of the accounts outside the power sector, at least 27 accounts had already been referred to the NCLT or were already admitted for insolvency, while five accounts would be resolved outside the insolvency process, the unnamed banker quoted above said.

The remaining eight accounts would have to be referred to the NCLT in the next few weeks, the banker added.

Provisions

SBI has largely provided for stressed accounts in the power sector, Basu said. There's no change in assessment on the provisioning requirements than what was guided for in the first quarter of the year to March 2019, he said, adding that additional provisions on these accounts may not be very high.

SBI, in its conference call for April-June quarter, said the bank holds about 40 percent provisions on stressed power accounts and expected a recovery rate was 50 percent. The bank, therefore, would need to make additional 10 percent provisioning on average.

The Feb. 12 circular of the RBI mandates that provisioning against any stressed account, even those under insolvency proceedings, be made on the basis of the income recognition and asset classification norms. As a result, provisions go up as the bad-loan account ages.

For the two lists of accounts that the central bank released last year for resolution under the Insolvency and Bankruptcy Code, banks were mandated to set aside 50 percent of all secured and 100 percent of all unsecured loans as provisions. So, the provisioning requirements for accounts under the Feb. 12 circular are lower.