180-day deadline not the end of the road: Bankers
LAST DAY TO COME UP WITH A RESOLUTION PLAN ON BIG-TICKET STRESSED ASSETS TODAY
Banks may breach the August 27 deadline for firming up the resolution plan of large-ticket stressed accounts. But that is not the end of the road as some aspects may give them a breather, say bankers . ADVAIT PALEPU RAO & ABHIJIT LELE write
Banks looks all set to breach the 180-day deadline that ends on Monday for firming up a resolution plan on big-ticket stressed accounts.
But that is not the end of the road as some aspects may give them a breather, feel bankers and experts.
The much-awaited Allahabad High Court (HC) judgment in case of stressed power assets, time taken for actual admission to bankruptcy court National Company Law Tribunal (NCLT) and the option to withdraw a case referred to NCLT with the consent of 90 per cent of lenders could ease the burden on lenders, especially public sector banks.
State Bank of India (SBI), the country’s largest lender, on Friday said about seveneight power sector projects worth ~170 billion are likely to be resolved soon, as lenders are nearing a consensus on them.
There are about 34 stressed power projects and the combined value of their outstanding loans is about ~1.74 trillion. These are part of 70 cases (each with exposure of above ~20 billion) being discussed for resolution within the deadline.
The Reserve Bank of India (RBI) has maintained that there is no need to grant an extension sought by power companies for completing resolution proceedings of stressed assets. It contended that government policies are partly responsible for stressed loans in the power sector.
The banking regulator has also requested
the Supreme Court to club all appeals in various high courts that challenge the RBI’s February 12 circular.
Senior PSB executives said while efforts are on to stay within the deadline, it is not a matter of worry. With amendment to the Insolvency and Bankruptcy Code (IBC), it is possible to withdraw a case referred to the NCLT with the consent of 90 per cent of the lenders. This provision will be used only in cases where lenders are confident of resolving them.
Moreover, even by assuming that many cases head to the bankruptcy court, lenders will have breathing period for making provision as it takes time for reference and admission of a case. Many cases (referred to NCLT at behest of the RBI) are yet to be admitted. Bankers said there is also the technical point of the RBI coming out late with a list of designated rating agencies to vet the resolution plan. While the timeline of 180 days began on March 1, the RBI came with a list in May. So, there may be some leeway in the time frame.
A lot depends on the HC judgment where the order was reserved on stressed power assets. “Efforts have been made by the banks to complete the restructuring process within the 180-day period but not many appear to be getting to the finishing line. Banks will have to be ready to file insolvency applications on these over the next few days,” said Sanjeev Krishan, Private Equity and Deals Leader at PwC India.
Saurav Kumar, Partner at Indus Law, said, “What I understand from the HC proceedings is that there should be an independent decision by banks or financial creditors to choose to proceed with IBC or not. It completely depends on the liquidation value of the company and what the banks derive from the assets.”
“The courts and tribunals are still setting the precedents on various aspects, which is why there has been delays in admission of cases,” Kumar said.