INSUBCONTINENT EXCLUSIVE:
Banks have been forced to put nonperforming assets (NPAs) worth ₹40,000 crore up for sale in sectors such as power, roadways and telecom
in the first half of the fiscal year to September because of delays in the resolution process under the Insolvency and Bankruptcy Code (IBC)
The prescribed timeline for IBC resolution has been derailed by various stakeholders challenging the process in court.
Data from the
Insolvency and Bankruptcy Board of India (IBBI) showed that as much as 34 per cent of the 1,292 cases in the bankruptcy courts up to June
have been delayed beyond the scheduled 270 days, up from 26 per cent a year ago and 31 per cent in the March quarter, giving rise to fears
that this could make the law ineffective, as has happened to previous such endeavours
Lenders are also looking to asset-reconstruction companies (ARCs) to acquire nonperforming assets (NPAs).
“Banks are interested in
resolution and recovery through NCLT (National Company Law Tribunal), OTS (one-time settlement), ARCs,” said a public sector bank CEO
“In some cases, where resolution is delayed for a long time, banks are opting for sale to ARCs.”
In all, 11private and state-run banks,
have put NPAs up for sale
Bank of Baroda has offered assets worth ₹11,000 crore, IDBI Bank is looking to sell ₹ 9,756 crore of assets and Andhra Bank, ₹4,887
crore.
“Banks have their own profitability to worry about and they do not want to hold on to entire NPAs and wait for resolution through
the NCLT process,” said Abhishek Dafria, vice president and sector head, structured finance, ICRA
“Timely conclusion of NPAs is important for the entire system to work efficiently
Those who are buying from banks also rely on NCLT for liquidation value.”
While the IBC operates through NCLT benches and the National
Company Law Appellate Tribunal (NCLAT), litigants have also approached the Supreme Court for redress.
‘Act Tough on Frivolous
Applications’The code is regarded as one of the signature reforms of the Narendra Modi government’s first term.
It was aimed at speeding
up the bankruptcy process, so that banks could fix their finances, restore credit growth and drive investment
“Banks are frustrated with the delay in resolution process,” said Edelweiss Asset Reconstruction Co
“Banks are also trying to put assets for sale as a last resort where they do not get the liquidation value.”
The government has made
changes to the IBC to ensure that timelines are adhered to.
“In most cases, there is a delay caused due to unnecessary applications being
filed by promoters and related parties,” said Ashish K Singh, founding partner, Capstone Legal
“NCLT should take a stringent view towards such frivolous applications either through imposition of exemplary cost whenever it is
Costs as a mechanism to desist frivolous litigation is used extensively by courts overseas, especially the insolvency tribunal in the
UK.”
Banks are opting for the asset-disposal route as some large NPAs from the first list referred to the NCLT by the Reserve Bank of
India (RBI) in 2017, including Jaypee Infratech, Amtek Auto, and Bhushan Power - Steel, are yet to be resolved
In instances where there’s little interest on the part of bidders in assets, banks are resorting to measures such as sales to
ARCs.
India’s 30 ARCs bought assets worth ₹24,000 crore from banks in the last financial year.
ARCs have to pay 15 per cent of the
purchase consideration as per current regulatory norms while the remaining can be picked up by qualified institutional buyers, many of them
overseas entities such as Goldman Sachs.
“For loans pertaining to sectors associated with regulatory issues like power, roadways, telecom,
ARC sales is the best route for present value retention and maximization on a later date,” said Hari Hara Mishra, director, UV Asset
“In such transactions, security receipt should be preferred so as to have a large chunk of upside over present distress value.”
Total
NPAs in the banking system are pegged at ₹9.3 lakh crore
Of this, experts say ₹2 lakh crore can be sold to ARCs.
“Last year, the volume of sale was good because banks were in PCA (prompt
corrective action) and it helped them by selling down,” said Chandan Churiwal, senior vice president at Assets Care - Reconstruction
“Banks are seeing the near-term benefit, where they would look into improving their NPA book
ARCs can hold on to assets for a longer time.”
