Insolvency cases: High provisioning fears subside among banks
Banks are in the middle of taking 12 large companies to National Company Law Tribunal (NCLT) after RBI identified these accounts for insolvency proceedings
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Mumbai: Housing Development Finance Corp. Ltd (HDFC) on Tuesday said its exposure of Rs909 crore to one of the accounts identified for insolvency proceedings is adequately provisioned, further cementing the view that the provisioning requirements for lenders may not be as high as initially feared.
Banks are in the middle of taking 12 large companies to the National Company Law Tribunal (NCLT) after the Reserve Bank of India’s (RBI) internal advisory committee identified these accounts for insolvency proceedings. These accounts accounted for a quarter of the banking system’s gross bad loans, which stand at nearly Rs7.7 trillion.
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The central bank has mandated banks to set aside 50% provisioning against secured exposures and 100% against unsecured exposure in all cases referred for bankruptcy. Banks can spread them over a period of three quarters starting July.
State Bank of India (SBI) chairman Arundhati Bhattacharya had said that additional provisioning, money kept aside to cover loans, for these 12 accounts may not dent profitability as it has already made large provisions.
Last week, Axis Bank informed exchanges that it had exposure to eight of these accounts with total fund-based outstanding of Rs5,071 crore. Non-fund-based outstanding was Rs212 crore.
Against this outstanding, the provision held was Rs2,497 crore, the private sector lender added.
Similarly, Bank of Baroda chief P.S. Jayakumar told CNBC-TV18 on Monday that the bank has Rs7,200 crore exposure to the 12 accounts. Against the outstanding amount, the bank has cumulative provisions of little over 50%, he added.
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Analysts said that at least in the case of big-sized lenders, the provisioning requirement is not expected to be large enough to dent profitability, but small-sized state-owned banks could see some pain.
“Small banks’ exposure in the consortium could be lower but given their capital position, any incremental provisioning may have an impact on the bottomline,” said a banking analyst with a local broking firm, on the condition of anonymity, as he is not authorised to speak to the media.
Meanwhile, Essar Steel, one of the 12 accounts, on Tuesday filed a petition in the Gujarat high court on the grounds of alleged arbitrariness in selection of cases by the RBI for insolvency proceedings. The matter is scheduled for hearing on 7 July.
So far, among the 12 cases, NCLT on Tuesday admitted an application filed by SBI against Jyoti Structures Ltd.
Hearing on SBI’s application against Monnet Ispat & Energy Ltd is scheduled for hearing at NCLT’s Mumbai bench on Wednesday.