Stressed borrowers: Banks summon promoters; firms asked to shape up

Led by SBI, banks ask firms to sell non-core assets or get external investors.

By: ENS Economic Bureau | Mumbai | Published:March 17, 2016 12:36 am

Worried over mounting bad loans, banks led by State Bank of India (SBI) summoned promoters of stressed borrowers over the last three days and asked them to shape up or ship out. Banks reviewed the financial position of several firms and asked the promoters to sell non-core assets or get strategic external investors who can bring in more funds to tide over the financial difficulties.

While promoters of several companies, including Uttam Group, Adhunik Group, Monnet Ispat, Bhushan Steel, Electrosteel Steel, Visa Steel and Lanco Teesta attended the three-day meeting, banks remained tightlipped about the asset review. According to a banking source, the message to promoters was that they should find ways to reduce debt through external investors or sale of assets. Banks have already announced strategic debt restructuring (SDR) of 17 companies involving a debt of over Rs 97,000 crore. All these cases were reviewed. “Banks want to send a tough message to errant borrowers. The Kingfisher episode has already unnerved bankers,” said an official.

Electrosteel’s Rs 2,500 crore loan is being converted at a price of Rs 10 against the market price of Rs 3.30, leading to a big loss for lenders. In fact, lenders had suffered huge losses in most of the loan conversions in the recent past. Banks are planning to classify loans given to Visa Steel as NPAs as the SDR plan for the firm has got stuck and the promoters are resisting the conversion of loans, given to subsidiaries, into equity. Under the SDR system, banks have the power to change the management of the company. Monnet Ispat (Rs 12,500 crore), Alok Industries (Rs 15,350 crore), Gammon India (Rs 14,810 crore) and Electrosteel Steels (Rs 10,990 crore) are the biggest debtors under the scheme.

The three-day review meeting conducted by the banks also ascertained the capacity of promoters to bring in more equity and willingness to implement the plans of the lenders. The bankers’ review meeting with promoters of stressed companies has come ahead of the meeting called by the finance ministry next week to review the situation.

With a sharp spike in loan write-offs and NPAs and a steep fall in profits spooking the sector, RBI Governor Raghuram Rajan had recently made it clear that banks “may require deep surgery” in order to put the stressed projects back on track and clean up the balance sheets. Rajan said the classification of stressed as NPAs is an anesthetic that allows the bank to perform necessary surgery to set the project back on its feet. The RBI which has asked banks to clean up their balance sheets by March 2017 has given them a list of some 150 accounts which had either become NPAs or are on the verge of becoming NPAs.

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