As RBI's Aug 27 deadline looms, over 60 large stressed loans worth over Rs 3 lakh cr stare at insolvency process

Bankers are attempting to resolve 60 non-performing assets (NPAs) and stressed loan accounts outside of the insolvency process in order to avoid large haircuts or loan losses

As the Reserve Bank of India’s (RBI) deadline to resolve large stressed assets ends on Monday, as many as 60 stressed loan accounts worth over Rs 3 lakh crore stare at insolvency proceedings.

This is a direct impact of the central bank’s circular released on February 12.

Bankers are attempting to resolve the non-performing assets (NPAs) and other stressed loan accounts outside of the insolvency process in order to avoid large haircuts or loan losses.

In the circular, RBI had told banks that they must initiate the plan for resolution of stressed assets as soon as they witness a delay or default in payments starting March 1. The banking regulator gave banks 180 days to resolve accounts above Rs 2,000 crore, failing which they would need to refer the accounts for insolvency action at various National Company Law Tribunals (NCLTs).

The 180-day deadline will expire by August 27, triggering banks to initiate insolvency process if an out-of-court settlement falls through.

“We are still trying to resolve the assets and we have to decide immediately within a few days' time after the deadline. Some should be successful but cannot say much as the projects are not viable and there is not much value that the promoters or borrowers are bringing,” said the chief of a large public sector bank alluding to a higher chance of companies heading to NCLTs.

Some of the 60-odd companies include the much-talked-about Bombay Rayon, Gitanjali Gems, Gayatri Projects, Patel Engineering, Gammon India, GTL Infrastructure, Punj Lloyd, Reliance Defence & Engineering, Bajaj Hindusthan, Pratibha Industries, and McNally Bharat Engineering Co, among others.

The total exposure to all the accounts could be to the tune of over Rs 3 lakh crore.

State Bank of India (SBI) said it is in advanced stages to resolve seven to eight power sector loan accounts worth about Rs 17,000 crore. Bank of India is looking at around 5-7 accounts. Power is one of the highly stressed sectors with close to Rs 1 lakh crore loans having turned sour or been recast.

“Some borrowers are coming forward with OTS (one-time settlement) option but nothing has been finalised on most accounts, some are being sold to ARCs (asset reconstruction companies) while some could be restructured depending on the borrowers’ capacity to pay a part of the debt,” said another senior bank executive of a large public sector bank.

He said in many ways a large number of accounts are still being attempted to be resolved outside of courts and if the deals remain unsuccessful, they will be left with no option but take it to the insolvency courts.

This will be the third set of non-performing assets (NPAs) or stressed loans which will be dragged to the courts under the IBC after the 40 accounts (12 in the first list and about 28-30 in the second list) taken so far since July last year. These loans constituted a large portion of the stress to the tune of over Rs 3 lakh crore.

Under the Insolvency and Bankruptcy Code (IBC), once admitted in the court, an insolvency resolution professional (IRP) takes charge of the assets from the company’s management with promoters losing control. Post this, the IRP must come out with a resolution plan with the approval of a committee of creditors (CoC) within a period of 270 days (180 days + 90-day extension). Failing which, the company goes into liquidation.

According to the RBI’s Financial Stability Report released in June, nearly 701 cases had been admitted for resolution across NCLTs. Of these, 525 were still undergoing resolution.

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