Bankers warn given RBI deadline of August 28, move may prove to be counterproductive
Lenders are planning resolutions of stressed assets with outstanding loans between Rs 1,000 crore and Rs 2,000 crore through the asset management company (AMC) model floated by the government, senior bankers told FE. According to a public-sector banker, since the Reserve Bank of India (RBI) has already specified a resolution timeline for stressed assets above Rs 2,000 crore, the new approach will be more useful for the ones that it does not cover.
The banker added that since the deadline for resolution under RBI’s circular ends on August 28, using the AMC approach for all assets above Rs500 crore could be counterproductive. Under the government’s Sashakt plan, stressed loan above Rs 500 crore would
be eligible for resolution under the AMC model. Data from Capitaline showed there are 293 companies with gross debt of around Rs 1,000-2,000 crore. Of these, a few companies such as Transstroy India (Rs 1,721 crore of debt), IndBarath Thermal Power (Rs 1,167 crore), Ankit Metal & Power (Rs 1,245 crore), GVK Gautami Power (Rs 1,189 crore) are stressed, according to publicly available information.
The banker quoted earlier that a lot of smaller power projects would qualify for this approach. It is known that the power sector is a significant contributor to the bad-loan pool in the system. The power sector accounts for at least Rs 70,000 crore of system-wide stressed loans. According to a report on stressed/non-performing assets in electricity sector tabled in Parliament by the Standing Committee on Energy on March 7, 34 power projects with a capacity of 40,130 MW are stressed.
“The idea is to take assets below `2,000 crore and move them to the AMC and make cash recoveries in two months,” the banker explained. Another banker at a large public-sector bank said several large loans will have to be sent to the National Company Law Tribunal (NCLT) if there is no resolution by August 28 and the AMC approach will prove beneficial for the remaining
companies. “However, we do not believe there would be any overlap between RBI’s timeline and the AMC mechanism,” the banker added.
Meanwhile, 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.
Through its February 12 circular, the central bank had abolished all existing restructuring schemes like strategic debt restructuring (SDR), scheme for sustainable structuring of stressed assets (S4A) and 5/25.