In the first list of 12 cases referred to the National Company Law Tribunal (NCLT) by the central bank, Punjab National Bank has an exposure in 9 of them while in the second list, it has lent to 20 out of 28 companies with an exposure of Rs65 billion. Photo: Pradeep Gaur/Mint
In the first list of 12 cases referred to the National Company Law Tribunal (NCLT) by the central bank, Punjab National Bank has an exposure in 9 of them while in the second list, it has lent to 20 out of 28 companies with an exposure of Rs65 billion. Photo: Pradeep Gaur/Mint

Forced insolvencies to help Punjab National Bank avoid huge haircuts

The Reserve Bank of India has asked banks to resolve bad loans at 40 of the biggest defaulters within a year

New Delhi: Punjab National Bank (PNB), India’s second-largest public sector lender, will be able to avoid massive losses after the government forced delinquent borrowers to repay loans or face liquidation proceedings under a new law.

The interest and bids received so far for assets put up for sale by India’s new bankruptcy court indicates that the bank may not have to take “huge haircuts" and cases will be resolved quickly, Sunil Mehta, managing director of the state-run bank said in an interview over the weekend. He did not give details.

The new insolvency law “will give a good message that if you do not meet your financial commitments you will not be able to retain your assets," Mehta said.

The government and the Reserve Bank of India (RBI) are taking unprecedented measures to clean up $207 billion of stressed loans and support lending that’s begun to revive from a 30-year low. India’s central bank has asked banks to resolve bad loans at 40 of the biggest defaulters within a year. Overdue borrowings have hampered investments and slowed growth in Asia’s third-largest economy.

On its part, the government will infuse Rs2.11 trillion ($33 billion) into cash strapped banks to rescue them. Under the proposal, it will sell Rs1.35 trillion of recapitalization bonds, while banks will raise another 760 billion rupees through resources from the federal budget and the markets.

In the first list of 12 cases referred to the National Company Law Tribunal (NCLT) by the central bank, Punjab National has an exposure in 9 of them while in the second list, it has lent to 20 out of 28 companies with an exposure of Rs65 billion.

The country’s soured-debt ratio is the worst among the world’s largest economies, data compiled by the International Monetary Fund (IMF) show. State-run banks account for almost 90% of all non-performing loans in the South Asian nation, according to Credit Suisse Group AG data. Bloomberg

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