Bankers hail RBI move to name top dud loans

Mumbai: Bankers have welcomed the Reserve Bank move to identify 25 per cent of the top non-performing accounts for immediate resolution under the Insolvency and Bankruptcy Code (IBC).

The central bank had said its internal advisory committee (IAC), which met on June 12, decided to focus on large stressed accounts and accordingly took up for consideration the accounts which were classified partly or wholly as bad loans from amongst the top 500 exposures in the system.

The IAC recommended referring all accounts with fund and non-fund-based outstanding amount greater than Rs 5,000 crore, with 60 per cent or more classified as bad loans by banks as of March 31, 2016.

The committee recommended 12 accounts as stressed accounts, totalling about 25 per cent of the current gross NPAs, to be immediately referred under IBC.

"It is a positive step that the IAC has identified 12 accounts. If the resolution takes place then it will be good for banks," United Bank managing director and chief executive Pawan Bajaj said.

"The message is that now the regulator is involved in the resolution process. Now, resolution of stressed assets will have a fixed timeline...there is a definitiveness," a senior State Bank of India official said.

The central bank didn't name the accounts but bankers said Essar Steel, ABG Shipyard, Alok Industries and Bhushan Steel could be among the 12 borrowers.

According to rating agency Icra's Karthik Srinivasan, while there is a large number of bad accounts, identification of the top 12 borrowers accounting for 25 per cent of gross NPAs, the legislative machinery and stake-holders like IBBI (Insolvency and Bankruptcy Board of India), NCLT, valuers etc can bring in focused approach while overseeing the resolution process in these specified accounts.

Risk consultancy firm Kroll managing director Tarun Bhatia said the move shows that RBI is supporting in early resolution of stressed assets. "This shows that RBI has NPA resolution on top of their mind," Bhatia said.

Total NPAs stand at over Rs 8 trillion of which Rs 6 trillion are with public sector banks. Last month, government had cleared an ordinance to amend the Banking Regulation Act, giving RBI more powers to direct banks to resolve bad loans. For other dud loans, IAC recommended that banks finalise a resolution plan within six months.

"In cases where a viable resolution plan is not agreed upon within six months, banks should be required to file for insolvency proceedings under IBC," it said.

Bankers and experts, however, feel though the process is a step in the right direction for resolution of stressed assets, absence of any precedence under IBC raises some concerns on the success of the entire exercises.

"There is no past history of success of resolution NPAs under IBC. For most of the identified accounts, lenders have been working on to resolve from the past three-four years and I am not sure how insolvency experts can do it now in a short span of time, I don't have a great opinion about the idea," said an official from a state-run bank.

"Everything is in a learning phase and it would be too much to expect now," he added.

Credit Suisse in a report today said filing under IBC does not lead to immediate liquidation, as there is a period of six to nine months for creditors to come up with a resolution, failing which liquidation would take place.

Bankers also expressed apprehensions on the haircuts which they will have to take in resolving stressed accounts.

"It needs to be seen that what kind of haircut  banks will have to take. It can have some impact om profitability," United Bank's Bajaj said.