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The big bank clean-up may have entered the final phase with almost Rs 4 lakh crore worth of bad loans going to the resolution process under the Insolvency Bankruptcy Code.
With the RBI’s 180-day deadline for resolution of stressed assets coming to an end, banks are now expected to initiate debt resolution proceedings against defaulters.
Incidentally, the last ray of hope has also faded for India Inc, with the Allahabad High Court refusing to provide any relief to power companies.
Although Supreme Court is scheduled to take their plea on Tuesday, legal experts say no big relief is in sight.
A Parliamentary standing committee on energy had even warned that the new norms will sound the death knell for power companies, which collectively owe over Rs 5.6 lakh crore to domestic banks.
With Allahabad High Court now refusing to intervene in the RBI move, it is a Catch-22 situation for banks.
While they are free to initiate winding-up proceedings against defaulting companies, they will have to take big hair cuts in case they are forced to put the assets under the block.
Through a circular on February 12, the RBI tightened the NPA norms, even introducing a one-day default clause.
Industry and banks have been opposing the new guidelines, saying that it is virtually impossible to find a resolution in 180 days.
On ET NOW’s India Development Debate, banking experts and industry representatives discussed the big NPA deadlock in the light of the Allahabad High Court verdict.
Here are the key takeaways:
PANEL VIEWSS MUNDRAFORMER DEPUTY GOVERNOR, RBI
As far as banks are concerned, this is not an event which was unknown.
Many of these accounts were already under stress.
On the part of banks, there have been provisioning.
There is a large economic interest which is locked in these projects.
What really concerns me is the positioning of NCLT.
Solution is not always the resolution.
There is a need for all the stakeholders to review the situation.
The process of NCLT itself is a kind of limbo.
ALOK DHIRMANAGING PARTNER, DHIR DHIR ASSOCIATES
In so far as power and infra cases are concerned, we have to look differently.
Issue with power is more macro in nature.
Not commercial, but policy dependent in nature.
We have to make a policy which is responsive.
We have currently 12 benches of NCLT, which have large workload in Delhi, Bombay, and Calcutta.
We have to look at these cases because of 180-day deadlines with a perspective of how to salvage them.
We have to protect stakeholders.
CYRIL SHROFFMANAGING PARTNER, CYRIL AMARCHAND MANGALDASLooking at the broader footing of infrastructure, many projects have concession agreements.
The financing is typically of 10-12 years, and at the end, you have to refinance.
Infra sector has special issues.
Bulk of the power sector will go into liquidation.
The nature of power sector is different.
I think there is going to be a deep haircut.
I don’t think RBI will change its stand.
I don't think the 270-day process is going.
PRATIP CHAUDHURIFORMER CHAIRMAN, SBI
They have a genuine case but I don’t know how far they will be successful.
How much they would turn around is a big question.
Poor financing of discoms has led to their undoing.
Power is not like steel.
It’s not internationally traded.
Where do you sell powerRs You can’t hold and store it.
You have to go to the discoms.
Discoms are not issuing power purchasing agreements.
The NCLT system should be flexible.
We should have more NCLT benches.
MYTHILI BHUSNURMATHCONSULTING EDITOR, ET NOW
High Court has given a small window of opportunity.
It would seem that banks have little option but to refer power sector NPAs to NCLT.
RBI circular has a generic approach.
NCLT, as it stands today, the number of benches is inadequate.
Most don’t have basic office infrastructure.
Amendments to IBC allowed promoters of small corporates provided they are not willful defaulters to bid.
Large corporates were not allowed for political backlash.
We need to show a little bit of pragmatism.
