Mumbai, August 30, 2017

The latest communique is a reminder of that deadline, say bankers

The Reserve Bank of India (RBI), sources say, has instructed banks to maintain the December deadline for completing the bankruptcy proceedings on their largest non-performing assets (NPAs), in addition to the 12 named in June and the ones in various stages of similar operations.

Senior bankers of various banks said there was no common list as such, but separate lists for different banks, drawn up on the basis of each one’s exposure to the defaulters.

So, say, if State Bank of India (SBI) received a list of 30 accounts, Punjab National Bank had a 20-account list, IDBI Bank had a list of 15-20 names, and Bank of Maharashtra was given a list of 10 names, say bankers. Many of the accounts are common among the lists as the loans were given by consortiums of lenders.

On June 13, the RBI had said the top 12 accounts, having an exposure of at least Rs 5,000 crore each, should be referred for bankruptcy proceedings immediately. The internal advisory committee (IAC) of the central bank had drawn up a list of 500 accounts and had asked banks to come up with resolution plans for the remaining 488 accounts in six months.

“As regards the other non-performing accounts which do not qualify under the above criteria (Rs 5,000 crore), the IAC recommended that banks should finalise a resolution plan within six months. In cases where a viable resolution plan is not agreed upon within six months, banks should be required to file for insolvency proceedings under the IBC (Insolvency and Bankruptcy Code),” the central bank communication in June had said. That six-month period ends in December.

The latest communique is a reminder of that deadline, say bankers. Also, it has said that the condition for provisioning in the accounts will be same as those of 12 accounts. This means if a company is referred to the National Company Law Tribunal (NCLT), banks have to provide a minimum 50 per cent provisioning, which would progressively rise with time.

The first 12 accounts were responsible for one-fourth of the bad loans in the banking system, or about Rs 2 lakh crore. The next set of 30-40 accounts might have caused the banking system about Rs 2.5 lakh crore in bad debts, say bankers.

The stressed loans in banks are close to Rs 8 lakh crore. The companies in question are from various sectors, including conglomerates. This is unlike the first list, on which half the companies were from the steel sector. Bankers say in most cases, resolution or restructuring plans are already under way. The recent RBI advisory has asked banks to hasten the process.

According to a senior public sector banker, soon after the names of the 12 accounts were passed on to the banks, the RBI had asked them to submit a list of their 10 largest troubled accounts and also the names of the accounts in which the individual bank was a consortium lender.

Since in most cases, State Bank of India (SBI) turned out to have the highest number of exposures, the RBI selected only those banks that had the highest working capital exposure as the lead bank for the resolution process. So, for example, in the case of Amtek Auto, even as SBI had an exposure of more than Rs 3,000 crore, Corporation Bank, with a term lending exposure of Rs 400 crore, was chosen as the lead bank for the resolution process as Corporation Bank had the highest share of working capital debt.

For the remaining accounts too, banks were advised to follow the same system in the case of consortium lending.

Corrective Action

  •     RBI has listed 12 accounts (exposure of at least Rs 5,000 crore each) for immediate bankruptcy proceedings
  •     12 accounts responsible for one-fourth of bad loans in banking system (Rs 2 lakh crore)
  •     RBI panel has made a list of 500 accounts
  •     Banks asked to come up with resolution plans for 488 accounts in six months
  •     Next set of 30-40 accounts might have caused the system about Rs 2.5 lakh crore, say experts
  •     Stressed loans in banks are close to Rs 8 lakh crore

[The Business Standard]