Banks set to crack down on defaulters in RBI’s second list

Banks set to crack down on defaulters in RBI’s second list

A majority of companies on RBI’s second list of loan defaulters, including Monnet Power and Visa Steel, will be referred to NCLT for bankruptcy proceedings

Banks are set to refer a majority of the 28 loan defaulters cited in the Reserve Bank of India’s (RBI’s) second list to bankruptcy courts starting Thursday, as the central bank prods lenders to speedily resolve bad loans clogging their balance sheets.

After its first list of 12 large defaulters was sent to banks in June, RBI sent a second list of 28 troubled companies in late August, accounting for Rs 2 trillion of bad loans, asking lenders to find resolution plans for them by 13 December or start insolvency proceedings by December end.

The assets of some of the 40 top defaulters are likely to be sold over the next few months as RBI and the government pushes lenders to speed up the resolution of Rs10 trillion of soured loans. This, along with the government’s Rs 2.1 trillion capital injection in state-run banks, is expected to give lenders the required resources to restart lending and boost economic growth.

Of the 28 names in the second list, at least five have already been taken to the National Company Law Tribunal (NCLT). That leaves banks with 23, some of which will now head for the bankruptcy court.

“A majority of cases will be referred to NCLT. We are awaiting rating of a few accounts which is expected in the next 2-3 days. Then we will decide on whether to refer the company for insolvency proceedings,” said a senior banker with a large state-owned bank.RBI has mandated that for a resolution outside NCLT, the portion of debt designated as sustainable must be rated by at least two external rating agencies as investment grade.

To be sure, banks have not finalized the list of accounts from the second list that will be taken to NCLT because lenders are expecting a resolution for Videocon Industries Ltd and Jaiprakash Associates Ltd, companies with large exposures, three senior bankers said, requesting anonymity.

Accounts where banks have decided to move NCLT, the adjudicating authority for proceedings under the Insolvency and Bankruptcy Code, include Essar Projects, Monnet Power Co., Visa Steel Ltd, Jai Balaji Industries Ltd, Uttam Galva Steels Ltd, Uttam Galva Metallics and Coastal Projects Ltd, among others.

“Aggregate sector level provisioning for the second list accounts is around 42-43% as compared to the 50% by March 2018 mandated by RBI for accounts under NCLT,” said Karthik Srinivasan, group head of financial sector ratings at Icra Ltd. “So, the insolvency reference may not significantly increase the provisioning burden on banks.”

In the case of Videocon Industries, consortium leader State Bank of India (SBI) is awaiting a rating before finalizing a resolution plan. The company’s standalone debt stood at around Rs19,506 crore at the end of March.

“It is a policy of the bank not to comment on individual accounts and its treatment,” an SBI spokesperson said in an email reply.Email and calls to Venugopal Dhoot, chairman and managing director of Videocon, remained unanswered.For Jaiprakash Associates, lead banker ICICI Bank has been in talks with promoters to sell assets and repay debt. The plan involves deep restructuring of the account. Standalone debt of the company stood at Rs 25,587 crore at the end of March.

An ICICI Bank spokesperson declined to comment. Calls and messages to Jaypee Group chairman Manoj Gaur were not answered.Separately, bankers are yet to decide on the one-time settlement proposal of Anrak Aluminium, and resolution plan for BILT Graphic Paper Products, which entails sale of loans to asset reconstruction companies.

A recent Business Standard report suggested that the banks have approached RBI for extension of the 13 December deadline. RBI is unlikely to accept their request, a central bank official said, requesting anonymity.

Others such as Orchid Pharma Ltd, Ruchi Soya Industries Ltd, Castex Technologies Ltd, IVRCL Ltd and SEL Manufacturing Co. Ltd have been referred for insolvency proceedings. Restructuring plan has been approved for Soma Enterprise Ltd and Jayaswal Neco Industries Ltd. In the case of Jayaswal Neco, banks are awaiting rating on the sustainable portion of debt.

The Mint, New Delhi, 14th December 2017