State Bank of India does not expect any defaults within the large corporate group and the pace of slippages has come down significantly, managing director – stressed assets, risk and compliance, Anshula Kant tells Mitali Salian. Excerpts:
On several occasions, SBI chairman Rajnish Kumar has stated that stressed assets have peaked – does it apply only to your bank or to the banking system?
In terms of peaking, I agree with him, at least for our bank definitely, we find that pace of slippages is coming down significantly. We know on our fingers, the accounts which are under risk of slipping. In fact, the differential between slipping or not is an accounting entry in some ways but we are working on all stressed assets, whether NPA or not. We are working with other lenders, borrowers and potential investors. The approach is very proactive now.
The large corporate group is largely derisked. We are not expecting any defaults there – exposures are of best quality and/or in the public sector or in the government. Commercial clients group has the other standard exposures. There too the quality of portfolio has improved. System of oversight of asset quality is working very well now in our bank.
With the Supreme Court’s decision on application of RBI’s February12 circular still pending bankers are continuing to work on resolution of select power projects. What is the progress on the front?
We are continuing to work on 6-7 cases, two cases are more or less at the penultimate stage now. We are still sticking to minimum `3 crore per MW for resolution outside NCLT, the bare minimum threshold that we are looking for. In some cases, we are getting a tad more, not significantly more, but anywhere between Rs 3 crore and Rs4 crore. Of course, all power cases the filing in NCLT has already been done but have not been admitted. There is a status quo, which is going on, so hopefully after the SC gives the judgement we will have more clarity on this.
What haircuts can banks expect on resolution of said assets?
Here we would typically see anywhere between 40-50% realisation or haircut, whichever way. In the 3-4 cases we are working on, where we have got some reasonable amount of clarity, it is coming to up to Rs 4 crore per MW. But you have to understand, these are the projects that have PPAs in place.
What sort of challenges has the process posed?
There are cases where there are many lenders and multiple interests. Sometimes interests are not fully aligned. I feel the challenge is also that if you go to NCLT, it is taking its own time – 180 days+ 90 days+ more. If an asset stays in D1 stage, it takes one year for it to get resolved in NCLT. So, you have one year time to provide all the way up to the haircuts you may need to take. Whereas if you go under this Samadhan scheme, the haircut is on the table now. So, you have to upfront the provisioning you need to make.
I think the big learning that came out even when the bankers met under the aegis of the DFS in Gurgaon last year is that we need to limit the number of lenders in a consortium. I think, 8-10, would be a more reasonable number.
So, you prefer upfront provisioning rather than having to provide as the asset ages while it awaits resolution in the NCLT?
Provisioning is the outcome, the purpose is to maximise and preserve value. This was particularly so in power cases where our understanding was that it would have a better outcome outside NCLT because even till now there is no real clarity what happens if you take it to NCLT.
There are multiple agreements, not just the the PPA and the FSA. Usage of land, what you do, whether all these authorities will agree to continue the existing arrangements, that is also a big challenge once you take it to NCLT. My worry is of realisation of value as time taken is much more elongated because of these challenges.
Has there been any progress on resolution through the Inter-Creditor Agreement?
We have identified a few assets, which we would like to test case this through the process though I am not sure whether the entire infrastructure is in place. I think the IBA has to put together a team though I understand the oversight committee is in place. The signing was the most challenging part and that is done.
Despite Section 29A, it is evident that promoters continue to look for loopholes to take back control to their companies. Your view?
While Sec 29A was needed and it gives us a lot of comfort, in the present scenario, the bidders of the corporate debtor have been litigating against each other on the grounds of ineligibility to bid and subsequent violation of Sec 29A of the Code. Sec 29A was brought into the Code to keep the defaulting borrowers out and not to provide a test to keep the bidders out. A lot of clarity has emerged in relation to Sec 29A, however, more interpretation is required.
In recent cases, we also find evidence of resolution applicants who have been awarded but have failed to meet their commitments.
While I would not like to comment on individual resolution applicants, this is a big concern for us. Our view would be that, in addition to Section 74(3), there should be some sort of a 29A section that should cover these kinds of bidders. People who have committed and then not lived up to that commitment should not be selected and maybe become ineligible to bid in the future cases.
While it is usually a case-by-case basis decision, generally would the bank prefer to sell a stressed asset exposure for upfront cash or settle for a cash and security receipt mix?
Track record of redemption of SRs is not satisfactory. So, I think, clearly our approach now is that we are opting and preferring for 100% cash. You call a spade a spade, take the haircut now and move on barring a few case where a more flexible approach may be warranted. But in most case, we are opting for 100% cash upfront. The SRs that we have, some have decent sized assets behind them.