Banks want oversight panel to vet debt recast decisions

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Mumbai | Published: February 17, 2017 4:00:44 AM

Wary of being questioned by the government on loan decisions, a panel of lenders led by State Bank of India (SBI) has requested the Reserve Bank of India (RBI) to allow all kinds of restructuring decisions to be vetted by an oversight committee (OC), senior bankers told FE.

Reserve Bank of India (Reuters)The banker said at present the RBI has mandated all recasts through the sustainable structuring of stressed assets (S4A) route to be cleared by the OC. (Reuters)

Wary of being questioned by the government on loan decisions, a panel of lenders led by State Bank of India (SBI) has requested the Reserve Bank of India (RBI) to allow all kinds of restructuring decisions to be vetted by an oversight committee (OC), senior bankers told FE. According to a banker, the issue was discussed at a recent meeting of the Indian Banks’ Association (IBA).

The banker said at present the RBI has mandated all recasts through the sustainable structuring of stressed assets (S4A) route to be cleared by the OC. “Once the OC agrees to a recast, we are on firm grounds and our decision to take a haircut cannot be questioned later,” he said, adding that banks are seeking OC approval for strategic debt restructuring (SDR) and even for recasts through the joint lenders’ forum (JLF) route. An OC, comprising eminent persons, has been constituted by the IBA in consultation with the RBI and its decision is binding on all members of the consortium.

SBI chairman Arundhati Bhattacharya on Wednesday said the resolution processes of bad loans should be such that if bankers take a decision, it cannot be challenged later. “We also need to ensure that whatever we do the process is such that it cannot be questioned and for this there are certain requirements which we are trying to ensure,” she said.

FE had earlier reported that under the current proposal, lenders want to revive these stressed companies without necessarily changing the management or upgrading the account from non-performing to standard. “We have received queries from certain investors who are willing to invest in stressed assets and also want to retain the current management. Typically, these are investors who do not possess management bandwidth,” the banker explained.

Under SDR guidelines, lenders have seven months, from the date the SDR scheme is effective, to convert their debt into equity. Should banks fail to do that, the SDR would fail and the asset will be classified as a non-performing asset (NPA).

SDR rules allow banks to convert debt at a price below the current market value or an average of closing prices during the ten trading days before the decision of the joint lenders’ forum. They can now own at least 51% of the equity of the company concerned.

Following rules put out by the RBI in June 2015, bankers have decided to try out restructuring for at least a dozen companies including Electrosteel Steels, Jyoti Structures, Lanco Teesta Hydro Power, Monnet Ispat, Coastal Projects, IVRCL, Gammon India and Visa Steel.

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