Earlier this week, the Reserve Bank of India announced an immediate and complete overhaul of stressed asset management system for a uniform and timely resolution under the new Insolvency and Bankruptcy Code in order to expedite the ongoing bank cleanup.
India’s banking system, which is sitting on a pile of Rs 9.46 lakh crore of bad loans, is currently being cleaned-up through government’s massive bank recapitalisation plan and nearly 40 companies already undergoing the insolvency process under the IBC, and many others are in line in coming months.
This, Ex-Lehman Banker Edwin Wong said, is a once-in-a-lifetime opportunity and the whole world is looking at Indian now. According to a report by Bloomberg, Edwin Wong, the chief investment officer of Hong Kong-headquartered SSG Capital Management, has said that if the government sticks to its timetable of the bank clean-up successfully, well-positioned investors should be “able to make money.”
“It’s getting a lot of attention because there is a timetable for the bankruptcy process,” Bloomberg quoted Wong as saying. The bad loans situation in the country escalated post-2011 when it surged dramatically from 2.67% to 9.11% by 2016 and to 10.2% by September 2017. Some rating agencies peg that it could be as big as Rs 11 lakh crore.
With new NPA framework by the RBI, people are hoping that it will solve the problem of hidden stressed assets in the books of the banks called ‘evergreening’ and timely resolution, which subsequently, help to improve the health of overall banking system, consisting of 21 Public Sector Banks (PSBs).
Te bank cleanup process kicked-in with the passage of the IBC as a law in 2016, which laid down rules for dealing with stressed assets. By June 2017, the RBI identified 12 big accounts with over RS 5,000 crore of bad loans for immediate resolution under the IBC and 488 other for debt restructuring.
In December, upon failing debt restructuring, about 28 other big companies were also asked to be taken to the insolvency court National Company Law Tribunal (NCLT). It is being understood that since the RBI had nearly 28 schemes for debt restructuring, which were not turning fruitful, it decided to streamline the process and came up with a new uniform and strict 20-page framework in the sink with the IBC.