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Tuesday, August 29, 2017

Reserve Bank of India (RBI) Announces Second List of at least 26 defaulters

The Reserve Bank of India (RBI) has sent commercial banks a second list of at least 26 defaulters with which it wants creditors to start the process of debt resolution before initiating bankruptcy proceedings, three bankers aware of the development said.
In a letter, the central bank said these accounts should first be resolved through any of RBI’s schemes before 13 December, failing which cases should be filed against these companies under the Insolvency and Bankruptcy Code (IBC) at the National Company Law Tribunal (NCLT) before 31 December.
NCLT is the arbitration authority for cases filed under the IBC.
These are accounts where 60% of the outstanding amount was classified as non-performing on the books of banks as of 30 June, RBI added in its letter, the bankers cited above said on condition of anonymity.
The defaulters’ list comprises companies primarily in the power, telecommunication, steel and infrastructure sectors, according to the bankers, who spoke on condition of anonymity. Mint hasn’t seen a copy of the letter.
Videocon Industries Ltd and Jaiprakash Associates Ltd (JAL) are the two large companies among the list of 26 defaulters, accounting for over Rs1 trillion of debt, two of the bankers said. Multiple phone calls to Venugopal Dhoot, chairman and managing director of Videocon, remained unanswered.
“We have no comment to offer as JAL’s resolution plan was approved on 22 June by JLF (joint lenders’ forum),” said Manoj Gaur, chairman, Jaypee Group.
Mint isn’t naming the remaining 24 defaulters because it couldn’t confirm the names from at least two bankers and couldn’t reach out to them.
On 19 August, Mint reported that RBI had identified 40 large defaulters as the next lot of firms where banks will push for early debt resolution. 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, the report added.
Gross bad loans of banks rose 24% year-on-year to Rs7.79 trillion at the end of June.
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 NCLT.
At that time, the central bank had 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.
“If this list is true, it creates an incentive for both lenders and borrowers to restructure accounts outside of the bankruptcy code and avoid the disruptions that a bankruptcy filing can sometimes cause,” said Ashwin Bishnoi, partner, Khaitan and Co.
“Of course, as lenders and borrowers compare their options, they would like to know the difference between the bankruptcy code and other RBI restructuring regimes in terms of asset provisioning for banks. RBI clarity on this comparison would be helpful,” Bishnoi added.

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