Mumbai: The Reserve Bank of India (RBI) has identified 40 large defaulters as the next lot of firms where banks will push for an early resolution, a government official said on condition of anonymity.
Along with the 12 cases where bankruptcy proceedings have already started, these would account for 60-65% of the bad loans clogging the banking system, this person added.
An RBI spokesperson declined comment.
A speedy resolution of these cases “will keep the banking system running", the government official said. He added that invoking the Insolvency and Bankruptcy Code won’t be the default option for resolving these accounts and lenders will also look at other mechanisms such as joint lenders’ forums.
Indian banks are sitting on a stressed asset pile of more than Rs10 trillion, of which gross bad loans accounted for Rs8.29 trillion at the end of the June quarter. The rest are restructured loans.
In June, RBI identified 12 accounts accounting for 25% of gross bad loans in the system for immediate bankruptcy proceedings. Except for Era Infra Engineering Ltd, the other 11 cases have been admitted by the National Company Law Tribunal (NCLT) by now.
At that time, the central bank had also said that lenders should finalize a resolution plan within six months for their top 500 stressed accounts. If they failed to find a resolution through other means, then they should move the NCLT for bankruptcy, RBI said.
“It has to been seen from which sectors these 40 large accounts are coming from. Interest has been shown by global investors in a few of the commodity companies which have been referred so far," said Siddharth Purohit, senior banking analyst, Angel Broking. “Banks will prefer resolution over liquidation, given lower incremental provisioning requirement in the former," he added.
Post identification of 12 large accounts, RBI asked banks to set aside 50% as provisioning for accounts referred under NCLT and 100% in case it is forced into liquidation. However, bankers said that there is no clarity on provisioning requirements for any fresh cases that might go to NCLT, Mint reported on 16 August.
Still, fearing a rise in provisioning, most lenders are identifying accounts which have remained bad in their books for at least three to four years or where liquidation is the last resort for recovery, the report said.
To be sure, banks have four more months to go to find resolutions for the top defaulter accounts before they invoke insolvency proceedings.
The central bank had also made it easier to pursue other options for resolution.
In May, RBI had slashed the minimum votes required in a joint lenders’ forum to reach a decision. Now, decisions agreed to by 60% of creditors by value and 50% by number would be the basis for corrective action plans, compared with assent of 60% by number of creditors and 75% by value to achieve resolution earlier.
Similarly, in June, the central bank expanded the scope of its oversight committee to approve all resolution cases where the aggregate exposure of the banking industry is above Rs500 crore.