Banks are unwilling to refer stressed assets for insolvency proceeding to the National Company Law Tribunal and are looking to resolve these cases outside the NCLT, sources close to the development said.
Higher provisioning requirement for assets that have been referred to the NCLT and a wider range of options available for resolutions of these assets outside the NCLT are the key deterrents, the sources added.
“We are looking at resolving the cases outside the NCLT. The RBI has given us time till December. If we are able to complete the restructuring before December, we will not have to go to the NCLT. We are in discussion with all the companies and are trying to resolve the cases,” a senior official with a large state-run banks said.
Since June, when the Reserve Bank of India mandated the banks to refer 12 accounts totaling about 25% of the R8 lakh crore gross non-performing assets to the NCLT, 11 cases have been admitted by it. In August, the central bank sent a second list of accounts to the lenders to be referred to the NCLT. Bankers said most of the large assets in the second list such as Videocon Industries, Uttam Galva Steels and IVRCL have not been referred to the NCLT as yet.
“Resolution in most of the cases will either require extension of time, reduction of interest rates or infusion of additional capital. Where all these three things result in the rating being investment grade and above, we will restructure it outside the NCLT,” the official from the large state-run bank said. “We are interested in getting our money back in as quick a time as possible with the least amount of haircut and provisioning. So whichever route helps us to achieve that, we will go with it,” he added.
As per the RBI’s requirement, banks need to make provisions of 50% of the loan amount for all cases that have been referred to the NCLT. For unsecured loans, the lenders need to provide for 100% provisions. Bankers said the higher provisioning requirement has discouraged them from referring cases to the NCLT. “If an asset is sub-standard for an year, we need to make 25% provisions. But if we refer it to the NCLT, it will immediately jump to 50%. It is a major disincentive,” a senior banker with another large public-sector lender said.
The NCLT is a more regulated and time-bound process and restricts the resolution options of the banks, sources said. “For example, the Allahabad High Court has ruled that while a case in the NCLT, the banks cannot enforce personal guarantees. But outside the NCLT, the threat of enforcing personal guarantees is an effective tool for the bankers,” a senior consultant with a large consulting firm that is helping banks with the insolvency process said.
Jyoti Structures, Essar Steel, Monnet Ispat and Energy, Alok Industries, Electrosteel Steels, Amtek Auto, Bhushan Steel, Bhushan Power and Steel, ABG Shipyard, Lanco Infratech and Jaypee Infratech are the 11 large assets that have been admitted by the NCLT.
By Shamik Paul