The last few days of the current financial year have been quite turbulent for public sector banks (PSBs) as many of them are hastily trying to upgrade as many non-performing assets (NPAs) to ‘standard assets’ as possible. This has led to a slugfest among them, according to highly placed sources in the banking industry.
“We are still trying to make some of our defaulters pay arrears in interest and principal before Thursday (March 31), so that our exposure to them can be considered ‘standard’, thereby reducing provisioning requirements. But the trouble is that in most cases, we are just one among their many lenders. So, it has ended up becoming a competition between us and the other lenders, all trying to upgrade as many accounts as possible,” the head of corporate credit at a PSB told FE on the condition of anonymity.
Several smaller PSBs that have lent to Alok Industries, for instance, are believed to have used the Bombay High Court’s decision to stall its strategic debt restructuring (SDR) until the settling of a winding up petition by HSBC to convince it to repay just enough to upgrade it to ‘standard asset’. “Our exposure to Alok Industries is for `500 crore. We still hope that we can upgrade it by the end of the day Thursday,” a senior banker with a small PSB said on Wednesday. He refused to divulge the names of other NPAs being pursued by his bank for upgradation since he feared that it would lead to other banks doing the same.
Introduced by the RBI last year, the SDR scheme allows the lenders to a company to pick up a controlling stake in it by converting a part of the debt owed to them into equity.
What has made this possible is the central bank’s regulations that doesn’t need the approval of all of a company’s lenders and an SDR can actually sail through with the approval of just 75% of them by value and 60% by number, thereby giving its smaller lenders the leeway to take an independent call.