Banks to drag 25 companies to insolvency as NPA overhang looms large

Published On: 14, Dec 2017 | Source:

The banks have finally set the ball rolling by referring most of the 28 companies identified by the Reserve Bank of India (RBI) as defaulters in the second list to the National Company Law Tribunal (NCLT) for resolution under the Insolvency and Bankruptcy Code (IBC), reports The Indian Express. “According to a banking source, as many as 25 companies will be referred to the NCLT. Another source said a list of only 23 companies will be forwarded now as lenders are in the process of finding a resolution for three to five companies,” reports The Indian Express citing unidentified sources. In August, the central bank had asked the banks to either resolve the 28 or more large stressed accounts by December 13 or refer them to the NCLT by December 31. Having failed to come up with resolution plans for most of the 28 stressed companies on the central bank’s second list, bankers had asked the RBI for a little more time to resolve a few of them. However, the RBI has not yet agreed to their demand for a further extension. Banks have already referred 11 companies out of the first list of 12 to the NCLT. “Bankers said Jayaswal Neco, Jayaprakash Associates, and Videocon Industries are not being considered for referral to the NCLT as lenders are looking at other options including the restructuring of loans,” the report states further.

The central bank had asked lenders to assess the sustainable debt for a company — regardless of whatever scheme has been initiated whether an S4A (scheme for the 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, the bank had explained. 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.