24 June 2019: Banks have just about a couple of weeks to decide the fate of more than 150 borrowers, which include sugarmaker Bajaj Hindusthan, energy companies RattanIndia Power and Suzlon and other infrastructure and road builders as the 30-day review period for these loans ends on July 7.
The new framework for resolution of stressed assets issued on June 7 requires banks, financial institutions, non-banking finance companies (NBFCs) and asset reconstruction companies (ARCs) to decide on a resolution plan and sign an inter creditor agreement (ICA) after a 30-day review period.
Alternatively, lenders can decide to take these accounts to the National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code (IBC).
It is estimated that banks have to decide on the way forward for distressed debt of at least ₹3 lakh crore, assuming an average loan outstanding of ₹2,000 crore for these 150-odd companies.
“All lead banks have started joint lenders’ meetings to decide the course of action on these accounts and assess whether there is scope for restructuring. Banks will have to take a decision on many of these accounts, especially those not yet admitted to NCLT,” said a senior executive in charge of recoveries at a public-sector bank. “The provisioning burden does not kick in right away but banks will have to make additional provisions if they cannot solve the issue in the next 180 days.”
The central bank circular says that if a resolution plan is not implemented within 180 days from the end of the 30-day period, banks have to make an additional 20 per cent provision. Another 15 per cent provision has to be made if a plan is not implemented within a year. These provisions are in addition to the provisions already held or made as per the asset classification. Past experience on lenderinitiated restructuring plans has been disappointing.
“Almost all the 590 restructured accounts in the corporate debt restructuring (CDR-II) failed. The list of accounts covered by June 7 circular of 150 or more accounts is not a new list, and many of them were part of earlier reviews,” said Harish Chander, a resolution consultant.
“With great effort, lenders were able to cover 3-4 accounts under successful restructuring. I think it makes sense for lenders to go through IBC process, as we have seen in Jet Airways.”
Limited capability of borrowers to meet financial commitments also hampers attempts at a workable restructuring plan.
The resolution plan involves promoters bringing in fresh equity or banks trying to change company management, both of which are difficult to achieve, Chander said. He expects companies in the infrastructure and manufacturing industries to be the first to be acted on.
Lenders have been given complete discretion to design and implement resolution plans. However, higher provisions in case of failure for a plan could be a deterrent.