Having failed to come up with resolution plans for most of the 28 stressed companies on the Reserve Bank of India’s (RBI) second list, bankers are understood to have asked the central bank for a little more time to resolve a few of them. The deadline for coming up with resolution plans for these companies is December 13; if not resolved, they need to be referred to the National Company Law Tribunal (NCLT) in another 18 days. Two bankers told FE, on condition of anonymity, the request for a grace period relates only to those stressed accounts that are being assessed by the credit rating agencies for a rating upgrade or those which are nearing resolutions. However, bankers are not too hopeful of getting an extension and are readying to refer most of the defaulting firms to the NCLT. State Bank of India (SBI) chairman Rajnish Kumar had indicated to reporters last month a majority of the companies on the RBI’s second list were likely to land up at the NCLT. “Almost the entire list will go to the NCLT,” Kumar had said.
What the central bank has asked lenders to do is to assess the sustainable debt for a company — regardless of whatever scheme has been initiated whether an S4A (scheme for sustainable structuring of stressed assets) or an SDR (strategic debt restructuring) — and have this debt upgraded to investment grade by rating agencies. Since there were not too many companies that needed to be rated, the process should not take much longer, they explained. “Only a few of the 28 companies listed by RBI have been sent to credit rating agencies for a rating upgrade,” one said.
Following the referral by banks of a clutch of 12 large accounts to the NCLT, banks have been asked to look for solutions to an additional 28 distressed companies. These 28 companies together owe banks a little over `1.5 lakh crore.
Of the 12 large accounts, 11 have been admitted by the NCLT and a resolution for these companies will be found as per the Insolvency and Bankruptcy Code (IBC). These companies have outstanding debt of more than `2.4 lakh crore. The total non-performing assets (NPAs) in the banking system are estimated at `8.5 lakh crore; in other words, approximately 10% of all outstanding loans have turned bad.
According to Investopedia — a website demystifying financial jargon — investment grade refers to the quality of a company’s credit and is generally ‘BBB’ or higher by Standard & Poor’s or Moody’s. Anything below this ‘BBB’ rating is considered non-investment grade.
FE had reported banks were looking for one-time settlements (OTS) with defaulting companies on the RBI’s second list and were willing to take haircuts of 50-60% rather than face uncertainty in the courts. Since several companies on the list have not attracted bids and the December 31 deadline is drawing near, the chances of them being liquidated is high.
In August, the RBI had sent lenders a second list of 28 stressed assets to be referred to the NCLT by December 31. The central bank allowed banks to make “adequate” provisions for such accounts by March 2018.
The new list, bankers said, includes Videocon Industries (gross debt of Rs 47,554 crore), IVRCL (Rs 3,579 crore), Uttam Galva Steels (Rs 5,041 crore), Soma Enterprises (Rs 1,895 crore) and Asian Colour Coated Ispat (Rs 3,019 crore). The RBI had asked banks to try and come up with workable solutions for the stressed exposures by December 13.a