Lower-rated borrowers account for a large chunk of one-day defaults at State Bank of India (SBI) under the new Reserve Bank of India (RBI) guidelines, a senior banker said.
According to him, ever since the one-day default norms kicked in, small companies and lower-rated borrowers have missed interest payments. “Since the highly-rated companies where we have an exposure have a better cashflow than their smaller peers, we have not seen major deadline misses from them,” he said, adding that the new circular has put the onus of repayment on the borrower.
In February, RBI had asked banks, either singly or jointly, to initiate a resolution plan as soon as a corporate default is spotted. In other words, banks have several options to revive the defaulting companies but these must be exercised within 180 days.
SBI chairman Rajnish Kumar, during announcement of the bank’s March quarter results, had said that the circular will bring better discipline among borrowers as the companies will also need to plan their cashflows properly. He added that there are a lot of delays in terms of payment to these corporates.
SBI has reported a loss of Rs 7,718 crore, for the three months to March, the lender’s second consecutive quarterly loss in FY18. The losses resulted from a spurt in provisions, largely for loan losses, along with mark-to-market (MTM) losses following a hardening of yields.
“So it is not only the borrower or the corporate who has to manage their cashflows, but I would need that the people who are to pay, including the state and the central governments, would also start paying in time so that the intent and the objective of the circular can lead to a very healthy credit market,” Kumar explained.
Going by the new framework for resolution of stressed accounts, the fate of a defaulting entity will be sealed within 465 days. If lenders are not able to work out a solution to revive a company within 180 days, the account must be referred to the National Company Law Tribunal (NCLT) and the case would be decided under the Insolvency and Bankruptcy Code (IBC).
Meanwhile, N S Vishwanathan, deputy governor, RBI, had said last month that a large number of borrowers, including some highly-rated ones have defaulted on loans repayments under the one-day default norm. Citing “first few reports received from banks” under the new reporting system, he had said that non-payment on due date appears to be seen as par for the course by the banks and the borrowers.