Banks are expecting a write-back in provisions for some of the large 11 accounts referred to the National Company Law Tribunal (NCLT), State Bank of India deputy MD (corporate accounts group) Sunil Srivastava tells Shamik Paul. He expects competitive bidding for these assets and, going forward, sees a decline in the rate of growth of non-performing assets. Edited excerpts:
By when do you expect the final resolution plans for the top 11 accounts?
We have received bids for a couple of them already, and they are under evaluation. As for the other large assets, we have seen very good response and the bids are expected in the next two weeks or so. We expect that in most of the accounts, resolutions will happen. Obviously, there are certain permissions and approvals that might be required. For example, if you have another company from the steel industry bidding for a steel asset, it will require a Competition Commission of India approval. In some cases, the resolution plan will require a Reserve Bank of India approval or Sebi approval. These approvals may take one or two months. Our expectation is that we may have a finality on the bids before the end of this quarter, and a full culmination of the process, with the change in management, by the end of the next quarter.
Are you confident of the top 11 accounts getting resolved?
For most of the top 11 assets, there will be a resolution because they are performing assets. They are operating at good capacities, and they have operated at higher capacities in the past. Obviously, when a company goes through such travails, one of the first assets to be impacted is the working capital and they operate at lower capacities. But if you infuse working capital, the capacity increases and the viability also improves substantially. Most of these are very valuable assets and they are now available at a fraction of the cost.If you try and set up a steel plant – a million tonne steel plant – it will not cost you less than a billion US dollars. Also, to get the clearances for land and water, etc., it will be a 7-10-year process. So, buying incremental capacity at a lesser cost and in a shorter period of time should be a win-win situation for any buyer. We expect, therefore, some very competitive bidding.
What kind of haircuts will bankers have to take on these accounts?
It will vary. For some of the performing assets, especially those in the steel sector, since we expect quite competitive bidding, perhaps the haircuts could be lesser than expected. We have actually seen cases where there have been some consolidation of debt at as high as 67% value. We have also seen smaller amounts traded at 70% as well. So, for all you know, we could possibly be looking at some write-backs on these, going forward.In the power sector, there is a realisation that setting up a power plant today will take around 7-8 years and it is not going to cost less than Rs 7-8 crore per megawatt. So, if one can get a power plant at a discount, it could be a huge bonanza for the buyer.
Has the current NPA cycle bottomed out?
There cannot be a situation where there are zero NPAs. NPAs can happen because of various reasons – some of them are beyond the control of promoters and some of them can be attributed to the promoters. Having credit costs of less than 1% in a developing economy like India is not going to be possible in the short run. There has been a lull in the investment cycle in the last few years. So, there will be a hiatus for the next 1-2 years. More importantly, most of the banks have actually identified and initiated measures in possible slippages.Going forward, we can anticipate an abatement in the growth of NPAs. Viewed particularly in the light of an expected pickup in the economy, and also the realisation to recognise stress and initiate corrective action in advance of any slippage, we do not anticipate the same level of problems as at present.
Will accounts in RBI’s second list see as much interest from investors?
In the second list, there are quite a few power companies and Engineering Procurement Construction (EPC) companies. While we expect the power assets to elicit reasonable bids, as far as the EPC and other companies are concerned, the levels of enthusiasm may not be as high.