RBI committee to review ~10,000-cr corp debt
RBI committee to review ~10,000-cr corporate debt The oversight committee (OC) set up by the Reserve Bank of India (RBI) to clear stressed corporate loans will review six more accounts in the next few days with debt of ~10,000 crore, under the Scheme for Sustainable Structuring of Stressed Assets (S4A).
Most of these accounts are from the infrastructure, textile and road sectors.
The OC has already cleared stressed debt to the tune of ~25,000 crore in 12 accounts, including Hindustan Construction and Bombay Rayon, with banks converting loans into equity under the S4A scheme, said a banker asking not to be quoted.
The OC was set up by the Indian Banks’ Association in consultation with the RBI, to help banks on stressed accounts as an additional layer of vetting, according to an RBI statement in June 2016.
This was necessitated as banks were reluctant to clear loan recast packages after investigating agencies started taking action against bank officials for clearing loans. The arrest of former IDBI Bank Chairman Yogesh Agarwal in January this year aggravated the problem, with banks not clearing a single proposal on their own and started referring all cases to the OC.
On June 22, the RBI added three more members to the OC, taking its strength to five members, and expanded its ambit. At present, the panel has the mandate to vet restructuring proposals for big-ticket stressed loans. Besides taking up cases under the S4A, it would also consider debt recast proposals for entities with borrowings over ~500 crore.
The action by the OC assumes significance as the RBI has identified 50-60 accounts which would be referred to the National Company Law Tribunal (NCLT) for action under the Insolvency and Bankruptcy Code. >
Of these, 12 accounts including Bhushan Steel and Essar Steel, have already been referred to the NCLT, which would take a call on changing the management or selling the companies to the highest bidder.
The OC has also written to the RBI to specify the kind of restructuring cases that would be referred to it, banking sources said. Under the S4A scheme, the debt of a stressed account is divided into two parts – sustainable and unsustainable. The “unsustainable” part would be converted to equity/quasi-equity instruments, which are expected to provide upside to the lenders when the borrower turns around. The borrower will only have to service interest and repayments on the “sustainable” part of the loan. The sustainable portion has to be at least 50 per cent of the debt under the present rule.
However, with inputs from banks as well as companies, the threshold of 50 per cent of unsustainable loan is also likely to be increased, said another source asking not to be quoted.