RBI deadline over… 70 firms with `3.6 lakh cr loans may now go ‘bankrupt’

NEW DELHI: The deadline set by the Reserve Bank of India (RBI) for corporate India to restructure Rs 3.6 lakh crore ($52 billion) stressed loans may push around 70 companies into bankruptcy. According to a report by the Bloomberg business and economic news, data and information website, the RBI set a 180-day timeline from March 1 for banks to recast stressed loans once payments are missed, scrapping previous methods that could take an indefinite amount of time.

If the RBI sticks to this plan, then the stipulated deadline is Tuesday, August 28, 2018. This implies that companies that were delinquent when the norms came into force will now run out of time and the lenders will have to start moving court to admit the cases under the country’s Insolvency and Bankruptcy Code.

The Indian banking sector is now suffering from the world’s worst bad loan ratio after Italy and has more than Rs 14.7 lakh crore ($210 billion) stressed debt on its balance sheets. According to International Monetary Fund (IMF) data, Italy’s gross non-performing loans stand at 14.4 per cent.

According to Bloomberg, the RBI has already asked lenders to take about 40 large defaulters to the bankruptcy court as overdue borrowings hamper fresh investment. The nation’s first big success under the new insolvency law handed about Rs 35,000 crore ($5 billion) to lenders after Tata Steel bought insolvent Bhushan Steel In May. With India already reeling under one of the world’s worst bad loan ratios, the RBI has predicted its increase to 12.2 per cent by March 2019 from 11.6 percent in March 2018.

With the RBI deadline now expiring, about 70 large Indian companies with debt of approximately Rs 3.6 lakh crore may be taken to bankruptcy court. The defaulting companies have been parleying desperately with the banks to restructure their loans ahead of the deadline, according to bankers familiar with the discussions. They added that some power sector deals are expected in the next few weeks.

The Bloomberg report quoted SBI MD Arijit Basu, who said that loans of as much as Rs 70,000 crore in the country’s power sector are in the process of being resolved, a development which would help the banks avoid dragging seven accounts to bankruptcy court. The lenders have identified 34 stressed accounts with dues of about Rs 1.8 lakh crore in the power sector.

Basu informed that 14 of these have been referred to the insolvency court, out of which “the difficulties have been resolved” for eight. Twelve more have the potential to be recast, with talks at an advanced stage in seven of these cases, where SBI has an exposure of Rs 17,000 crore, he said.

Incidentally, the power producers had approached Allahabad High Court to prevent the banks from initiating insolvency proceedings against them. However, the court reportedly rejected their plea on Monday.