Banks may move NCLT against four of 12 major defaulters this week
Monnet Ispat, Alok Industries, Amtek Auto and Essar Steel will likely be the first companies where bankruptcy proceedings are initiated this week
Latest News »
- China to build first Mars simulation base near Tibet to catch up with India
- Tata Motors expands commercial vehicle range in Philippines
- Donald Trump vows to ‘terminate’ NAFTA if negotiations fail
- Ajit Doval to meet Chinese President Xi Jinping along with BRICS NSAs
- SSC CGL 2017: Admit card of Combined Graduate Level exam available at ssc.nic.in
Mumbai: Monnet Ispat Ltd, Alok Industries Ltd, Amtek Auto Ltd and Essar Steel Ltd will likely be the first companies where bankruptcy proceedings are initiated this week, people aware of the matter said.
Last week, the joint lenders’ forum met to approve referral of these bad loan cases to the National Company Law Tribunal (NCLT) after the Reserve Bank of India (RBI) directed banks to trigger the Insolvency and Bankruptcy Code (IBC) against 12 identified defaulters who accounted for a quarter of the stressed loans in the banking system.
More From Livemint »
Banks have chosen leading law firms such as Cyril Amarchand Mangaldas and Co. and Shardul Amarchand Mangaldas and Co. and also shortlisted insolvency resolution professionals from audit firms including EY, KPMG, Alvarez and Marsal, and PricewaterhouseCoopers, the people cited above said. Under the IBC, creditors suggest the names of these interim insolvency professionals, which are then approved by the tribunal.
Mint spoke to four people, including bankers and lawyers; all of them spoke on condition of anonymity.
A senior official at Alok Industries said the firm has not heard from the lenders on the timing of the filing. Essar and Amtek spokespersons declined comment.
In reply to a text message, Monnet Ispat chief Sandeep Jajodia said, “All the companies are being filed within a few days, where SBI is leading is being filed a little earlier. But it’s just about the preparedness of various banks, no special reason for filing Monnet case a day earlier or later than the others.”
“In most of these 12 large cases, there had been some groundwork in terms of resolution by lenders in the past. Now, with the NCLT route, they may probably rework on the same plan..,” said Kumar Saurabh Singh, partner at law firm Khaitan and Co.
Subscribe to Our Newsletter »
Under the IBC, once NCLT accepts an application, the interim insolvency resolution professional is appointed to take over the management.
The professional has to draw up a resolution plan after consulting all stakeholders and this must be implemented within 180 days (with an option for a 90-day extension). In case there is no resolution plan or it is not accepted by the creditors, the company will go into liquidation.
Separately, banks have started a preliminary assessment of additional credit costs after the central bank asked them to set aside 50% provisioning against secured exposures and 100% against unsecured exposure in all cases referred for bankruptcy, said two bankers, who are among the four people cited earlier.
The regulator has asked banks to spread these provisions over a period of three quarters starting in the September quarter. The Economic Times first reported this on Monday.
According to credit rating agency Crisil Ltd, banks have already provisioned 40% for these 12 identified non-performing asset (NPA) accounts, which are worth Rs2 trillion in total.
Based on an assessment of “embedded value in the top 50 NPA cases, we estimate a 60% haircut would be needed on these loan assets. That would mean banks will have to increase provisioning by another 25% this fiscal, compared with 9% in the last,” said Krishnan Sitaraman, a senior director at the rating agency.
Crisil also said that the impact of these increased provisioning costs could be mitigated if banks are allowed to amortize the provisioning across six to eight quarters.
RBI’s internal advisory committee had recommended that for bad loan accounts worth at least Rs500 crore, banks should finalize a resolution plan within six months, failing which they should trigger bankruptcy proceedings.