7.28 ` LAKH CRORE

THE BACKLOG OF NPAs IN THE SYSTEM

"IF PROMOTERS ARE NOT COOPERATING, THERE IS A WELL LAID OUT MECHANISM UNDER THE BANKRUPTCY CODE"

Rajkiran Rai G MD& CEO, Union Bank of India "THE CODE PROVIDES PROMOTERS AN OPPORTUNITY TO PRESENT A RESOLUTION PLAN FOR CONSIDERATION BY CREDITORS"

Cyril Shroff Managing partner, Cyril Amarchand Mangaldas "THE HAIRCUTS TAKEN BY BANKS WILL DIRECTLY TRANSLATE INTO LOSSES"

Amit Kumar Partner & Director, BCG

Bhushan, Essar and Monnet Ispat. The biggest confidence booster for new buyers or private equity is the liabilities getting crystallized in a court driven process. In a situation outside NCLT, the acquirer is never sure of liabilities arising in future. Another twist in the bankruptcy tale could be the unpredictable nature of Indian promoters. “The code also provides promoters an opportunity to present a resolution plan for consideration by creditors,” says Cyril Shroff, Managing Partner at Cyril Amarchand Mangaldas.

There could also be challenges on the role and conduct of insolvency professionals. “The breaches and bad faith actions of insolvency professionals can lead to consequences which will act as a deterrent,” says Shroff. Under the code, insolvency professionals enjoy extraordinary powers. They have to be truly independent like independent directors on the board.

Maximum Burden on Banks

Public sector banks are going to shoulder the maximum burden. Currently, banks have made 40-50 per cent provisioning in these 12 accounts. Bankers admit that haircuts on loans are imminent. The haircuts could be more than `20,000-25,000 crore depending upon the equity intake and additional funds from promoters. “The haircut taken by banks will directly translate into losses due to increase in credit cost,” says Amit Kumar, Partner & Director, BCG.

These 12 accounts are just the tip of the iceberg. There is close to `14 lakh crore locked in stressed accounts (not all NPAS). Bankers are preparing for the worst case scenario – liquidation – which not only means loss of capital, assets and shareholders’ value, but also employment. Is the Indian economy prepared? That is a bigger issue. Over to NCLT. ~