Banks set norms to select bidders for troubled assets

Banks set norms to select bidders for troubled assets

Banks, stung by fear of investigative agencies disrupting their lives even if they follow the bankruptcy process, have evolved a common set of evaluation criteria to short list potential buyers to be admitted in the bidding for assets put on the block under the Insolvency and Bankruptcy Code, said two people familiar with the developments

The ability of the bidders to bring in equity funding, future potential to borrow, past track record of turning around projects are among the criteria evolved after weeks of deliberations, said the people who did not want to be identified. The other criterion that could go in favour of bidders are: higher amount of sustainable debt, shorter duration of the repayment schedule, equity upside for the lenders, allotment of redeemable instruments to lenders and the optional cash flows at the disposal of the bidder.

“As a bank I am interested in getting most of my money back in the short- est possible time and with the least amount of haircut,” said a banker at a state-run bank who did not want to be identified. “With these objectives in mind, who so ever gives me a cheque with a single amount I am happy with it because it will help me get rid of the non-performing loans.”

Bankers, who were haunted by the arrest of their peers in the Kingfisher AirlinesBSE 3.03 % case and the bogey created by the prospect of unscrupulous promoters getting their asset at a steep discount, are turning cautious. Although the Insolvency and Bankruptcy Code provides protection from the gumboots, bankers do not want to take any risk. Banks have also prepared a set of subjective criterion to evaluate the bidder which includes the applicant’s background

Ten days ago, the Act was amended to bar wilful defaulters from participating in the resolution process, while other defaulters can participate only if they regularise their loans before bidding. As things stand, all lenders are unanimous that the highest bidder will have priority over others. “If that is not possible and he says part debt and part restructure, there will be tenure based discount. If lenders have to make sacrifice, then we will see what equity is given to us and what is the bidder’s track record,” said another bank official

The Economic Times, New Delhi, 5th December 2017