Relief for sick companies, next SBI chairman Rajnish Kumar says liquidation last option

By: | Published: October 6, 2017 6:29 AM

Rajnish Kumar, managing director and chairman-designate, State Bank of India (SBI), said on Thursday that liquidation should be the last option while attempting a resolution of sick companies under the Insolvency and Bankruptcy Code (IBC).

rajnish kumar, sbi new chief, new sbi chief, sbi new managing directorSBI new chief Rajnish Kumar.

Rajnish Kumar, managing director and chairman-designate, State Bank of India (SBI), said on Thursday that liquidation should be the last option while attempting a resolution of sick companies under the Insolvency and Bankruptcy Code (IBC).

Speaking to reporters, Kumar said that although lenders had taken a huge 90% haircut in one case, this would not necessarily be true for all other companies. “That one single instance cannot become the guidance for future. As far as the National Company Law Tribunal is concerned, each case is different,” Kumar said.

He added that creditors would weigh their options to assess whether a particular company should be allowed to operate or be liquidated. “Liquidation is the worst option because the recovery will be lowest,” the managing director explained.

Kumar defended the high risk premiums charged by banks, pointing out that in some segments the delinquencies were very high, compelling lenders to pencil in a higher risk premium. “It is not arbitrary but at times the arbitrariness comes in because we are working in a very competitive environment,” he observed.

Kumar added at times the market conditions were such that the bank was unable to charge the risk premium that it should be charging. “Banks are following the MCLR formula prescribed by the Reserve Bank. For the risk premium we take into account the credit costs related to the portfolio,” he said, adding that banks tended to pass on any advantages they had in terms of capital to the borrower.

The MD observed that following the initial public offering of SBI Life Insurance, the bank may choose to dilute some of its stakes in National Stock Exchange and Small Industries Development Bank of India. “We are not seeing this as a major activity as of now but in the long run we may see a stake in some businesses like the SBI Mutual Fund or SBI Cards,” he said.

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