RBI circular on bad loans: Rs 3 lakh crore loans to come under IBC for resolution

As much as Rs 3 lakh crore worth of loans of 70-80 companies is likely to come in for resolution under the Insolvency and Bankruptcy Code (IBC) starting early next week.

Written by Sunny Verma , George Mathew | New Delhi | Updated: August 25, 2018 7:02:08 am
RBI circular on bad loans: Rs 3 lakh crore loans to come under IBC for resolution The RBI had recently reviewed around 200 stressed assets of top business groups to assess the status of their classification and provisioning (Express Photo/Prashant Nadkar)

As much as Rs 3 lakh crore worth of loans of 70-80 companies is likely to come in for resolution under the Insolvency and Bankruptcy Code (IBC) starting early next week.

The Reserve Bank of India’s February 12 circular on restructuring bad loans had mandated banks to take loan accounts which remain unresolved for over 180 days, to the National Company Law Tribunal (NCLT) under the IBC. With the deadline ending on August 27, banks will be required to push unresolved cases to NCLT benches for resolution starting Monday, banking industry sources said.

“The RBI has not provided any relaxation on the February 12 circular despite submissions from the government and industry. While banks have worked on resolution in some cases in the intervening period, a large number of cases still needs to be pushed to the NCLT,” said a senior banker who did not want to be named.

The RBI had recently reviewed around 200 stressed assets of top business groups to assess the status of their classification and provisioning, and identify companies that would require resolution under the IBC. Most of these accounts, with value above Rs 2,000 crore each, have been declared as non-performing assets (NPAs) by banks and are required to be referred to the NCLT.

The State Bank of India, the country’s largest lender, does not expect a major spurt in cases and expects resolution in many accounts within the specified timeline. “We have been bringing out the stress in the system, accounts classified as SMA (Special Mention Accounts) and NPA, and we have worked at resolution. We have not waited for the August 27 deadline, and have referred many companies to NCLT. I don’t see any major spurt as far as SBI is concerned merely because August 27 is approaching,” SBI MD Arijit Basu said on the sidelines of a banking conclave on Friday.

SBI has been accelerating provisioning for these accounts. Loan accounts which remain unpaid for 0-90 days are termed as special mention accounts.

Accounts of banks including SBI, Punjab National Bank, Axis Bank and IDBI Bank, among others, are likely to be referred to the NCLT benches. Power sector companies are likely to be among the main cases that will now undergo resolution under the IBC. There are about 34 stressed power projects and the combined value of their outstanding loans is about Rs 1.74 lakh crore. SBI is expected to resolve 7-8 large power sector accounts soon and is working on resolution of some others as well, Basu said.

“Many (power sector) accounts have been resolved. Subsequently, we looked at 13-14 accounts where we could put it under scheme, where it would entail changes in management, investment. Out of that 7-8 accounts, we are looking very closely, to get some consensus among the banks…There are investors who have expressed interest and we are in a very advanced stage as far as these accounts are concerned. Some of these, we should be able to conclude very soon,” he said.

After the banks refer these fresh cases to the NCLT, nearly all stressed accounts involving loans above Rs 2,000 crore each will be undergoing resolution under the IBC. For accounts with loan exposure below Rs 2,000 crore and above Rs 1,000 crore, the RBI is expected to announce the resolution framework in due course.

Last June, the RBI had sent a list of 12 defaulters with over Rs 5,000 crore of aggregate loan exposure each for resolution under the IBC. Of this, 11 accounts are in various stages of resolution at different benches of the NCLT, with bankers expecting over 50 per cent recovery from these accounts. The RBI subsequently sent another list of 28 stressed accounts for resolution. However, banks don’t expect more than 25-30 per cent from these accounts.

“If a RP (resolution plan) in respect of such large accounts is not implemented as per the timelines specified (in the circular), lenders shall file insolvency application, singly or jointly, under the Insolvency and Bankruptcy Code, 2016, (IBC) within 15 days from the expiry of the said timeline,” the RBI mandated in its February 12 circular, which kicked in from March 1, with the 180-day deadline ending on August 27.

Banks and other creditors recovered nearly 55 per cent of the total claims in the 32 cases that have been resolved under the IBC till June-end, including from large accounts such as Bhushan Steel and Electrosteel Steels, as per the latest data available with the Insolvency and Bankruptcy Board of India. This does not include companies for which liquidation orders were passed.

Financial and operational creditors could recover around Rs 49,800 crore out of the total claims of Rs 90,000 crore in these 32 companies. So far, around Rs 4 lakh worth of claims have been admitted for resolution under the IBC.

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