Banks appoint insolvency professionals for 7 large accounts

Banks are almost done giving mandates to insolvency professionals for the 12 big accounts, which are responsible for nearly ~2 lakh crore of bad debts in the banking system.

According to sources, a bank with the highest exposure in working capital loans, and not term loans, will decide on the insolvency professionals. Thus, for example, in case of Amtek Auto, State Bank of India has a share of ~3,500 crore, while Corporation Bank’s share in term loan is ~400 crore, but the latter has highest share in working capital loan given to the company. Therefore, Corporation Bank invited bids to fix insolvency professionals and gave the mandate to EY.

According to sources, so far in seven large cases insolvency professionals have been appointed.

Amtek Auto Ltd (~14,074 crore) has gone to EY, Essar Steel (~37,284 crore) to Alvarez & Marsal, Bhushan Steel (~44,478 crore) to Deloitte, Electrosteel Steels (~10,273.6 crore) to PwC, Jyoti Structures Ltd (~5,165 crore) to BDO, while Monnet Ispat & Energy (~12,115 crore) and Alok Industries Ltd (~22,075 crore) have gone to Grant Thornton.

The mandates for ABG Shipyard (~6,953 crore) and Bhushan Power & Steel Ltd (~37,248 crore) will be decided this week, while banks have not called bids for Lanco Infratech Ltd (~44,364.6 crore), Era Infra (~10,065.4 crore) and Jaypee Infratech (Rs 9,635 crore) yet.

In all cases, banks will have to take a huge haircut, while the resolution plan could come from the existing promoters themselves, say bankers. The promoters are now ready to sit at the negotiating table with the bankers as they fear losing full control of the company in a short while. It is also costly for the banks as the haircut and provisioning would be steep.

“Based on CRISIL’s assessment of embedded value in the top 50 NPA cases, we estimate a 60 per cent haircut would be needed on these loan assets. That would mean banks will have to increase provisioning by another 25 per cent this fiscal year, compared with 9 per cent in the last,” said Krishnan Sitaraman, senior director at CRISIL Ratings.