Bhushan Steel, Essar Steel and Bhushan Power & Steel are likely to feature among the 12 accounts recommended by the Reserve Bank of India’s (RBI) internal advisory committee for resolution under the Insolvency and Bankruptcy Code (IBC). With a gross debt of Rs 44,477.93 crore as on March 31, 2016, Bhushan Steel is probably the single-largest toxic exposure that banks have on their books. The Essar Steel account too is fairly large, with lenders having disbursed some Rs 37,284 crore. Again, Bhushan Power & Steel, which owes banks around Rs 37,248.26 crore, is an account that is in trouble. The RBI has identified 12 large accounts (with exposure of more than Rs 5,000 crore and more than 60% of which are recognised as NPAs) which banks have to refer under the IBC. “We estimate a couple of large steel companies account for around 50% of this and the rest of the names are from textile and construction sectors,” analysts at Credit Suisse wrote in a note. They said these resolutions would need additional provisions. “We estimate 40-60% provision would be needed on the steel accounts and even larger provisions for the others,” the analysts opined.
The RBI has indicated that it would shortly come out with changes in provisioning needs for cases to be referred to the IBC, which may defer immediate provisioning needs. Companies, to which lenders have slightly smaller exposure, but which could be the RBI’s list are: Alok Industries (Rs 22,075.15 crore), Monnet Ispat and Energy (Rs 12,115 crore), Electrosteel Steels (Rs 10,273.59 crore), IVRCL (Rs 10,107.24 crore), Era Infra Engineering (Rs 10,065.38 crore), ABG Shipyard (Rs 9,290.35 crore), Sterling Biotech (Rs 4,790.23 crore), Moser Baer India (Rs 4,610.21 crore) and Visa Steel (Rs 3,800 crore).
These amounts add up to a little more than Rs 2 lakh crore, or about 30% of Rs 7 lakh crore worth of gross non-performing assets (NPAs) in the banking system. The central bank has said the 12 accounts on the list constitute about 25% of the current gross (NPAs) of the banking system.
Some analysts believe loan accounts of Jaypee, GVK, GMR and/or Abhijeet Groups could be part of the list. Yet, others say divergences among banks regarding the classification of such accounts make it difficult to say with certainty which accounts are on the list.