Banks to rope in turnaround specialists for troubled firms

Vishwanath Nair Posted online: Thursday, Dec 26, 2013 at 0000 hrs
Mumbai : Hoping to recover a larger chunk of their dues, bankers now plan to rope in specialised firms that will take over the management of companies that are in trouble and put them back on track, reports Vishwanath Nair in Mumbai. Sources say a few public sector banks and a couple of old-generation private banks, which have high levels of stressed assets on their books, are in discussions with specialists like Alvarez & Marsal (A&M) that focus on such turnarounds. Management changes are imminent at three telcos — one of them a large network provider, sources told FE.

Although banks can put in place a new management if a company has defaulted — the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act allows this — they have rarely exercised the option. Bankers say running the day-to-day operations of a company is not a practical option, especially one that isn’t doing well. The latest initiative has been prompted by criticism from the banking regulator and the finance ministry that banks aren’t recovering their dues quickly enough.

A recent Reserve Bank of India (RBI) discussion paper on early recognition and resolution of stressed assets suggests, among other measures, a sale of stressed assets to “specialised entities”, private equity firms and asset reconstruction companies at an early stage. The discussion paper also talks about allowing banks to fund leveraged buyouts of stressed assets.

A&M, founded 30 years ago, started its India operations in 2008 when restructuring Lehman Brothers’ India business.

Lehman had invested approximately $1.1 billion in India in public and private equities, government bonds, real estate and infrastructure, and A&M's role was to optimise the value of the portfolio and return the proceeds to the Lehman creditors in the US. "We've completed over 20 assignments across sectors primarily for PE portfolio companies," said Nikhil Shah, senior director, A&M India.

Of all state-owned banks, PNB has the highest non-performing assets (NPAs) with a gross NPA ratio of 5.14% and loans worth R16,526 crore having gone bad. Among other PSU banks with high toxic assets, Central Bank of India reported gross NPAs of R11,563 crore or 6.47% of total assets.

Old-generation private sector banks too have suffered due to weak asset quality. Among these, the Kerala-based Dhanlaxmi Bank reported a gross NPA ratio of 5.31% while Lakshmi Vilas Bank's ratio stood at 5.22% as on September 30.