Identified: 12 insolvent accounts responsible for 25% of toxic assets on bank balance sheet
MUMBAI: The Reserve Bank of India (RBI) Tuesday sought to address potentially about a fourth of the Rs 10 lakh-crore non-performing assets (NPAs) on the books of local lenders, mandating that a dozen such accounts be taken to the bankruptcy courts. Although the RBI didn’t name any defaulter, bankers say borrowers such as Bhushan Steel, Essar Steel, Lanco, and Alok Textiles may be the first set of companies facing proceedings under stringent recovery laws.
“The IAC, in the meeting, agreed to focus on large stressed accounts at this stage and accordingly took up for consideration the accounts which were classified partly or wholly as non-performing from amongst the top 500 exposures in the banking system,” the RBI said in a statement issued late Tuesday.
On Monday, the Internal Advisory Committee of the RBI recommended referring to the Insolvency and Bankruptcy Court all accounts with total outstanding loans greater than Rs 5,000 crore, with at least three-fifths (60%) classified as non-performing by banks as on March 31, 2016.Read more ↓
“The IAC (Internal Advisory Committee) noted that under the recommended criterion, 12 accounts totaling about 25% of the current gross NPAs of the banking system would qualify for immediate reference under IBC (Insolvency and Bankruptcy Court),” it said.
For other bad loans that do not fall in this category, banks will have six months to come up with a resolution plan, failing which they would also land up in the bankruptcy courts.
“The IAC also arrived at an objective, non-discretionary criterion for referring accounts for resolution under the IBC,” the RBI said.
Since the government came up with an ordinance that empowered the RBI to chalk out plans for addressing the bad-loans problem, there was speculation that the banking regulator would get entangled in commercial decisions. But today’s notification shows that the regulator has kept away from specific cases, providing instead broad and directional guide.
The Indian banking system is saddled with sticky loans. Bad loans at state-run banks have increased by more than Rs 1 lakh crore since April 2016 to Rs 6 lakh crore as of December 31. This goes up to Rs 10 lakh crore when those of private and other lenders are added on.
“Decisions taken on behalf of the banks by the regulator will make recoveries faster,” said Kalpesh Mehta, partner at Deloitte. “Earlier, banks could not move fast due to bureaucratic processes. Banks should ensure that possible losses arising out of this should reflect in their balance sheets. Lenders need to appoint the right kind of professionals for the proceedings.”
Finance minister Arun Jaitley has said that the RBI was at a fairly advanced stage of preparing a list of borrowers for which a resolution is required through the IBC process. The problem of bad loans is not systemic, but limited to 30-50 accounts, Jaitley has said on many occasions.
“We have decided to focus on a few large stressed accounts under this framework and accordingly a set of accounts has been identified, based on objective criteria,” RBI governor Urjit Patel said last week. “The decision on specific accounts out of these to be referred to the IBC, or to be restructured, will be taken under the guidance provided by Internal Advisory Committee.”
The regulator has already shared the list of 50 biggest defaulters with the central government. The list included companies such as Bhushan Steel, Bhushan Power, Lanco, Videocon, Jaypee Group, Essar, ABG Shipyard, Punj Lloyd, Electrosteel Steels, Aban Holdings, Monnet Ispat, Prayagraj Power, and Era Group, ET reported earlier.
The stressed assets of Indian banks are likely to increase to 15% of total loans by March 2018 amid rising requirements for regulatory capital until 2019, S&P Global ratings said in a report recently.