Fearing IBC, promoters line up to pay their dues
Promoters of companies in default have started seeking an audience with bankers to pay up, seeing how big-name corporate families have lost their family jewels since the Insolvency and Bankruptcy Code (IBC) came into effect. Bankers say there is palpable fear among erring promoters that the banking system just cannot be taken for granted, and any delay in loan repayment could mean promoters losing business.
Bankers say promoters are now eager to do a one-time settlement (OTS) of their accounts, and square off their
dues, without even being prompted by banks. Bankers are also happy to go through this route as it saves them time and trouble. “The recovery in the present context via OTS would be better and quicker than through the insolvency proceedings,” said a senior
banker with a public sector bank.
So far about six-seven mid-sized cases have emerged where OTS outside the IBC has taken place and where promoters voluntarily came and asked for squaring off their dues. Haircut, or discount, given by banks ranged between 30-70 per cent in these cases. But there are many more companies in the pipeline willing to avoid the IBC proceedings, as it is almost certain that the promoters stand to lose control of their business, say bankers.
The accounts are not large. Even though theses range between ~50 million and ~30 billion, it is a good sign. Banks are busy meeting company representatives, and more often than not, the lead bank in a consortium is in charge of leading the discussions, say bankers. While OTS schemes are not a new concept, bankers wanted to avoid it earlier as promoters tried to extract the highest possible discounts on their dues. But now with the IBC, bankers have negotiating power.
“We have received quite a few OTS requests, and we are sitting across the table to negotiate. You can say the process of paying up has started,” said a senior banker with Bank of Baroda.
OTS schemes will only pick up the pace after a committee headed by Punjab National Bank Chairman Sunil Mehta proposes several asset reconstruction companies to be built up for bad assets of banks. In such a set-up, expected to have private participation too, assets will be sold before promoters can negotiate a decent restructuring scheme for their companies.
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