Banks get 15-day window to resolve stressed assets

By: | Published: August 28, 2018 3:18 AM

Banks will have to file for insolvency proceedings against 70 stressed assets worth nearly Rs 3.8 lakh crore in the next 15 days with the Reserve Bank of India’s deadline coming to an end on Monday and the Allahabad High Court refusing to provide any interim relief to power companies.

Of these 70 assets, about 35 are power sector assets, with a total bank exposure of Rs 1.74 lakh crore. (Reuters)

Banks will have to file for insolvency proceedings against 70 stressed assets worth nearly Rs 3.8 lakh crore in the next 15 days with the Reserve Bank of India’s deadline coming to an end on Monday and the Allahabad High Court refusing to provide any interim relief to power companies.

This is likely to push up their provisioning requirements, although the additional amount is likely to be spread over the September, December and March quarters. The future course of action will also depend on any order passed by the Supreme Court. Of these 70 assets, about 35 are power sector assets, with a total bank exposure of about Rs 1.74 lakh crore. “The amount of additional provision that the banks will have to make will depend on the assets, and for how long they have been classified as non-performing. Also, the provisioning does not have to be upfront,” a senior banker with a public sector lender said.

Krishnan Sitaraman, senior director at CRISIL Ratings, said the provisioning requirements will continue to be high in the current fiscal, resulting in a number of banks likely to report losses. However, a material increase in the non-performing asset (NPA) ratio is unlikely as most of these loans have been recognised as NPAs, Sitaraman added.

A senior banker said 16 power assets under RBI’s February 12 circular have already gone to NCLT and they may be admitted over the next few weeks.

State Bank of India chairman Rajnish Kumar on Monday told a business news channel, “There is a lot of hype regarding the August 27 deadline. Sometimes I wonder if it is warranted. There is no impact whatsoever, be it NPA or provisioning. The reference to National Company Law Tribunal (NCLT) has already been happening. Nobody was waiting for August 27 to come.”
Of the 35 power sector assets, the banks have finalised resolution plans for around 8 assets. While the lenders have broadly reached a consensus on the value of the bids for these assets, the banks are yet to complete their internal approval process. Legal experts said that unless a deal has been signed, it is unlikely to be accepted as resolved.

Cyril Shroff, managing partner, Cyril Amarchand Mangaldas, told a business news channel,”It depends on how final it is. If the signature on the deal has been made, it is likely to be considered as resolved. Otherwise, it might not be good enough.” However, the matter is most likely to be heard at the Supreme Court, he added.

Bankers and industry experts fear that if the power sector assets are referred to the NCLT, they will lose their power purchase agreements, and then it would be even more difficult to find a buyer for the asset.

“I am not bother about the provisioning. What I am worried about is the power purchase agreements. If these assets go to the NCLT, they may be cancelled,” Ravi Krishan Takkar, MD and chief executive of UCO Bank, was quoted as saying by a business news channel. Banking sector analysts said the probability of resolution for powers sector assets with exposure of around one lakh crore is meager, and banks might have to take higher haircuts for those accounts. The gross NPA of the banking sector stands at Rs 10.5 lakh crore as of March 31, 2018.

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