PSU banks eye new strategy to resolve stressed asset cases

Public sector bankers have devised an informal rule of thumb to resolve stressed asset cases beyond the 12 identified for bankruptcy proceedings by the Reserve Bank of India. A threetier strategy is being evolved internally, according to four bankers who spoke on conditions of anonymity.

Smaller stressed accounts of less than ₹1,000 crore will be put for sales to asset reconstruction companies (ARCs), midsize cases of ₹1,000-5,000 crore will be resolved through restructuring schemes and larger cases will be tried at the NCLT per RBI rules.

The need for a 360 degree approach to resolving the stressed asset cases comes as lenders want to ensure faster recovery from the stock of ₹10 lakh crore of stressed assets choking the banking system.

Earlier this month RBI identified 12 large stressed accounts with outstanding of over ₹5,000 crore to be referred to the NCLT. In other cases, the central bank asked banks to finalise a resolution plan within the next six months, failing which it will be filed for bankruptcy proceedings.

On Thursday, it announced the members of its oversight panel on bad loans and said it will also oversee stressed loans greater than at least ₹500 crore.

While the RBI has kick-started the process, industry watchers say this is going to be a longdrawn one. Meanwhile, banks are keen on continuing the resolution process by referring eligible cases to under various schemes such as strategic debt restructuring and scheme for sustainable structuring of stressed assets.

Bankers said the involvement of the oversight panel will ensure that they can take higher haircuts, or sacrifice of the loan amount, without the fear of investigating agencies.

For other smaller cases, lenders have upped their resolutions efforts in the current quarter by clearing the old stock of NPAs, a phenomenon usually seen in the fourth quarter of the fiscal year. Banks, including State Bank of India, Andhra Bank, Allahabad Bank, and United Bank of India (UBI), have already put on the block non-performing assets worth at least ₹8,500 crore, majority of which are with outstanding balance of below ₹100 crore.

The final outcome of these sales will also help gauge whether the revised norms of the RBI, in effect since April 1, are a deterrent for using the ARC route for bad-loan resolution.

From the beginning of this fiscal, if a bank invests in more than 50% of security receipts created against the sale of its own stressed assets, it has to set aside more money as provisions. From 2018-19, this threshold of 50% will be reduced to 10%.

“If ARCs have no capital, then banks will have to look at bifurcating the NPA cases and selling the small accounts to ARCs while addressing the larger ones through the NCLT,” said Eshwar Karra, chief executive officer, Phoenix ARC, which manages ₹6,000 crore of stressed assets primarily in the small and medium enterprises.