Banks start mov­ing on sec­ond list of de­fault­ers

Lenders at work on res­o­lu­tion plans, fil­ing in­sol­vency cases against NPA ac­counts in RBI list well ahead of De­cem­ber dead­line

Mint Asia ST - - News - BAY LEKH A RCHANA & M A LVI K A J O S H I

Banks have started work on debt res­o­lu­tion plans or are in the process of ini­ti­at­ing in­sol­vency pro­ceed­ings against de­fault­ers named in the cen­tral bank’s sec­ond list well in ad­vance of the 13 De­cem­ber dead­line set by the reg­u­la­tor, three se­nior bankers said.

In June, the Re­serve Bank of In­dia (RBI) sent its first list of 12 de­fault­ers to their cred­i­tors for the quick launch of res­o­lu­tion pro­ceed­ings at the Na­tional Company Law Tri­bunal (NCLT) un­der the In­sol­vency and Bank­ruptcy Code (IBC). The bor­row­ers had bad loans to­talling Rs2 tril­lion.

Many ac­counts in RBI’S sec­ond list are al­ready in the process of debt res­o­lu­tion and most lenders have set aside ad­e­quate money to cover the risk of de­fault, in­di­cat­ing that ef­forts to re­solve the bad-loan pile will gather pace.

Banks, mainly public sec­tor lenders, are weighed down by stressed as­sets amount­ing to Rs10 tril­lion.

“Ag­gre­gate sec­tor-level pro­vi­sion­ing should be ad­e­quate, but bank-wise there may be some deficit. But it is not ex­pected to be large... even if the ac­count goes to NCLT,” the chief ex­ec­u­tive of a state-run bank said on con­di­tion of anonymity.

Banks have till 13 De­cem­ber to fi­nal­ize res­o­lu­tion plans for at least 28 ac­counts that are part of the sec­ond list, fail­ing which they will have to ini­ti­ate in­sol­vency pro­ceed­ings. In the in­terim, banks have the op­tion of re­in­forc­ing pro­vi­sions pro­gres­sively and then mov­ing the ac­counts to the NCLT.

Banks, ac­cord­ing to the cen­tral bank’s direc­tive, have to pro­vide 50% against all loans ad­vanced to bor­row­ers re­ferred to the NCLT.

As a first step, lenders are iden­ti­fy­ing ac­counts al­ready go­ing through debt res­o­lu­tion un­der schemes such as change of man- age­ment un­der strate­gic debt re­struc­tur­ing and bi­fur­ca­tion of debt into “sus­tain­able” and “un­sus­tain­able” por­tions un­der the scheme for sus­tain­able struc­tur­ing of stressed as­sets, also known as S4A. Once a list is drawn up, cred­i­tors will iden­tify the firms where re­struc­tur­ing could be suc­cess­ful.

Lenders may file for in­sol­vency pro­ceed­ings even be­fore the 13 De­cem­ber dead­line for ac­counts where re­struc­tur­ing is ex­pected to fail, said a banker with another state-run bank, also on con­di­tion of anonymity.

NCLT will speed up the res­o­lu­tion process, but re­solv­ing most of these stressed as­sets through any route, in­clud­ing IBC, would en­tail banks sac­ri­fic­ing a por­tion of the prin­ci­pal and in­ter­est due to them, said Suresh Gana­p­a­thy, an an­a­lyst at Mac­quarie Re­search Eq­uity. “To that ex­tent, there will be pres­sure of in­creased pro­vi­sion­ing.”

Video­con In­dus­tries Ltd and Jaiprakash As­so­ciates Ltd (JAL) are the two large firms among the sec­ond list’s 28 de­fault­ers, ac­count­ing for over Rs1 tril­lion of debt, Mint re­ported on 30 Au­gust, cit­ing two bankers who re­quested anonymity.

“We have no com­ment to of­fer as JAL’S res­o­lu­tion plan was ap­proved on 22 June by JLF (joint lenders’ fo­rum),” Jaypee Group chair­man Manoj Gaur had said then.

Venu­gopal Dhoot, chair­man and man­ag­ing direc­tor of Video­con, said on Tues­day that the company will not be re­ferred to NCLT. “We have an in-prin­ci­ple ap­proval from our lenders to re­struc­ture our do­mes­tic loans as we are pump­ing Rs3,000 crore as eq­uity. Our loans will be re­struc­tured by Septem­ber,” he said, adding that bank ex­po­sure was Rs21,000 crore.

Others such as Coastal Projects Ltd and Soma En­ter­prise Ltd, part of the new list, are work­ing with lenders on a res­o­lu­tion plan.

“We have sub­mit­ted a res­o­lu­tion-cum-re­vival plan to the mon­i­tor­ing in­sti­tu­tion, i.e. SBI (State Bank of In­dia). We are ex­pect­ing that it would be con­sid­ered pos­i­tively,” T. Srinivasa Rao, direc­tor of Coastal Projects, said in an emailed re­sponse.

Soma En­ter­prise said it was in ad­vanced talks with its lenders to re­struc­ture loans un­der S4A be­fore De­cem­ber.

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