Mumbai: After initiating insolvency proceedings against 12 large borrowers, following the Reserve Bank of India’s (RBI’s) directive, most banks are drawing up a list of other accounts to be taken to the National Company Law Tribunal (NCLT).

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, bankers said. 

Bankers said preference is for old, small-sized accounts backed by adequate cover in the form of provisions to be tried for insolvency.

This is to ensure that opting for the NCLT route may not increase the need to set aside more funds and add further pressure on profitability.

After directing banks to take the 12 big defaulters, accounting for one-quarter of the industry’s bad loans, to NCLT, RBI asked them to set aside 50% provisioning against secured exposures and 100% against unsecured exposure in these cases.

For other large, stressed exposures, RBI has given banks a six-month window to finalize a resolution plan.

In case, there is no viable resolution plan within that time frame, banks will have to move NCLT.

Bankers, however, said RBI has not clarified on provisioning for other cases referred to NCLT.

In a call with analysts on Monday, the IDBI Bank Ltd management said that is no clarity on whether a similar provisioning treatment will be accorded to other cases.

Also Read: NCLT okays first insolvency resolution scheme under IBC

SBI chairman Arundhati Bhattacharya also said in an earnings call that RBI has not come with any clarification for cases other than the dozen identified.

In a 19 July report, rating agency CRISIL Ltd said its analysis showed banks may have to sacrifice Rs2.4 trillion in the form of haircut to resolve the top 50 stressed accounts.

Thus, many banks are looking to identify older, already well-provided for accounts for the next round of insolvency proceedings.

“We are considering (NCLT process) in a number of smaller cases," said Bhattacharya in the same earnings call. 

R. Subramaniakumar, managing director and chief executive officer at Indian Overseas Bank, said his bank is identifying cases, which are not providing desired results via resolution mechanisms such as strategic debt restructuring (SDR), scheme for sustainable structuring of stressed assets (S4A), that can be taken to the NCLT for realisation of dues. 

“We are in the process of empanelling professionals such as IRPs (interim resolution professionals) and lawyers to ensure that the required infrastructure is in place when we take the NCLT route," he said. 

Upon admission of a petition at NCLT, a 180-day moratorium, extendable by another 90 days, begins to decide on a resolution plan. In case the account is not resolved, the company goes into liquidation. 

To be sure, in many cases, ageing of bad loans is expected to increase provisioning requirement even otherwise. However, bankers are expecting that the natural ageing provisioning would be incrementally slower than what RBI might mandate in case an account is taken to NCLT.

After the RBI direction, various NCLT benches have accepted cases against 11 identified large borrowers, with Era Infra Engineering being the only exception. 

 The Indian banking industry is sitting on a pile of stressed loans worth at least Rs10 trillion. June quarter earnings showed the problem is yet to peak, as a 14 August Mint report showed.