With public sector banks under pressure to speed up bad loan resolutions and recoveries, State Bank of India (SBI) has put Rs 15,431 crore worth bad loans belonging to Essar Steel for auction. The SBI move follows the banks’ decision to seek release of assets of former chairman of the now-defunct Kingfisher Airlines, Vijay Mallya, attached by the Enforcement Directorate at the PMLA (Prevention of Money Laundering Act) Court to recover their dues “immediately”.
Inviting bids from other banks, asset reconstruction companies and NBFCs for the Essar assets, SBI said, “The resolution plan has been approved and filed in NCLT, Ahmedabad.
As per approved resolution plan of AMIPL, minimum recovery to SBI is Rs 11,313.42 crore. The reserve price of Rs 9,587.64 crore is on the basis of NPV of minimum recovery discounted at the rate of 18 per cent with a time factor of one year.”
“The facility may be assigned in whole or in part and all the security in relation to the same will be transferred and shared pari-passu to the extent of the amount of facility assigned. In case the amount is realised prior to one year, the buyer must offer a claw back option based on the time factor,” SBI said. “The bank shall retain pari-passu charge on the securities relating to un-crystallised non-funded facilities. In case of crystallization of non-funded facilities after the sale, that portion (converted into funded) will also be sold by the bank to the same ARC/ buyer who will give acceptance for the same through offer letter/ supplementary agreement/ assignment agreement,” SBI said.
PSU banks to step up bad loan recovery plans
The government is in a hurry to show better recovery of bad loans by PSU banks ahead of the Lok Sabha elections in April-May this year. The recovery under IBC has been painfully slow with many big bad loan accounts still remaining unresolved. The Financial Stability Report of the RBI had said the asset quality of banks showed an improvement with the gross non-performing assets (GNPA) ratio of banks declining from 11.5 per cent in March 2018 to 10.8 per cent in September 2018. It’s likely to decline to 10.3 per cent in March 2019. Banks are expected to speed up bad loan recovery in the coming months. Moreover, 11 banks which are under prompt corrective action (PCA) framework of the RBI are keen to come out of the curbs in order to lend more.
According to banking sources, PSU banks, hit by bad loans, are speeding up their initiatives to recover their loans stuck as non-performing assets with defaulters like Mallya’s airlines. “The government is also keen that banks should speed up recovery in the current fiscal ending March 2019. When Vijay Mallya asked the lenders and the government to sell the attached assets so that banks’ money can be repaid, some of these banks had opposed the proposal. Now the same banks have asked to court to release the assets of Mallya to recover their dues,” said a source.
In October 2018, the Ruias had sought to turn the tables on ArcelorMittal with its eleventh hour offer of Rs 54,389-crore offer to settle the dues of banks and other creditors of debt-laden Essar Steel and keep the company within their stable. The Ruia offer was Rs 12,188 crore more than the Rs 42,202 crore bid put in by ArcelorMittal, which has been selected as the preferred bidder by the lenders as part of the corporate insolvency resolution process under the Insolvency and Bankruptcy Code. The total dues of Essar Steel is Rs 54,389 crore.
A day later, ArcelorMittal had said lenders of Essar Steel have approved a joint offer by ArcelorMittal SA and Japan’s Nippon Steel & Sumitomo Metal Corp as the final bid for the debt-laden company. The committee of creditors of Essar Steel has accepted the joint offer made by ArcelorMittal and Nippon Steel, it said. The resolution plan includes an upfront payment of Rs 42,000 crore to the lenders and a Rs 8,000-crore capital injection in Essar Steel to support operational improvement, the LN Mittal-owned firm had said.
More banks are expected to speed up the NPA recovery efforts as gross NPAs of the banking system shot up to Rs 10,39,700 crore, or 11.2 per cent of total advances, during the fiscal ended March 2018 as against Rs 791,800 crore (9.3 per cent of advances) in the same period of last year.