Looking to spruce up their balance sheets before the year is over, bank chiefs are now meeting once a fortnight. With barely 70-odd days for the year to end, the deadline is short given solutions need to be found for stressed exposures of around R2.3 lakh crore to 10 large companies. Already, three meetings have been held, bankers said, in an initiative led by State Bank of India (SBI) chairman Arundhati Bhattacharya.
With resolution measure such as strategic debt restructuring (SDR) and the scheme for sustainable structuring of stressed assets (S4A) not having proved successful, bankers are discussing the pros and cons of a deep restructuring and perhaps management changes at some companies. However, banks have been reluctant to go ahead with any deep restructuring without a buy-in from the Reserve Bank of India (RBI), fearing adverse repercussions.
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FE had reported that banks were toying with the idea of deep restructuring that would see a portion of the loan being converted into equity and the repayment period for the rest of the loan being extended.
Among the accounts that are stressed and on which decisions need to be taken are Essar Steel, Videocon Industries, Bhushan Steel, Bhushan Power & Steel, Jaypee Infratech, Electrosteel Steels, Jindal Steel & Power (JSPL) and Uttam Galva.
While meetings of the joint lenders’ forum (JFL) continue as before, these are usually attended by junior officers who often do not have the authority to take important decisions.
In contrast, with banks chiefs attending the fortnightly meetings, decisions are expected to be taken quickly. According to the RBI’s Financial Stability Report (FSR), the gross non-performing asset (NPA) ratio climbed to 9.1% in September 2016 from 5.1% in September 2015.
Under SDR rules, banks can convert debt at a price below the current market value or an average of closing prices during the 10 trading days before the JLF decision. They can now own at least 51% of the equity of the company. Following rules put out by the RBI in June 2015, bankers have decided to try out a restructuring for more than a dozen companies including Electrosteel Steels, Jyoti Structures, Lanco Teesta Hydro Power, Monnet Ispat, Coastal Projects, IVRCL and Visa Steel. However, in the majority of the accounts, banks have failed to convert their debt into equity within 210 days of the the decision, rendering the SDR void.
Through S4A, banks have tried resolving stress in a handful of accounts like HCC, Supreme Infrastructure and JSPL. However, the RBI-mandated overseeing committee has only cleared HCC’s rejig.