Banks and financial institutions may be placing all their bets on the new framework – Inter Creditor Agreement (ICA) – to resolve bad loans, but experts say it could lead to duplication as some of the accounts are already under the NCLT process. Sources also hint that the creation of the ICA framework was largely due to less than anticipated success rate of the Insolvency and Bankruptcy Code, which aims at resolving cases in a time-bound manner.
For instance, as on March, over 700 cases are with NCLT, of which a mere 13 per cent cases were resolved. About 300 cases ended in liquidation, of which nearly 150 cases are under dispute. Interestingly, of the RBI’s second list of 29 large NPA cases, the NCLT admitted just 14. Worse, a staggering 2,200 cases were waiting to be admitted at the NCLT, which has just 10 benches to clear the amassing pile. Of this, about 70 large cases could come up in the July-September quarter, including 40 power projects that are headed for the scrap heap.
“The IBC is a significant reform, but resolution is getting delayed due to legal hurdles. A part of the delay is also caused due to disagreements about lenders, which is why the ICA was created,” a senior banker told TNIE. As on March, 2018, stressed assets are in excess of Rs 12.47 lakh crore, while bad loans aggregate Rs 10.2 lakh crore. Of this, currently loans worth Rs 4 lakh crore are being resolved under IBC and at various benches of NCLT. Last month, Piyush Goyal, interim finance minister, noted that there are about 200 accounts with an outstanding debt of Rs 50-500 crore and another 200 accounts with debt of Rs 500-2,000 crore each. Together, these 400 accounts owe over Rs 6.2 lakh crore, but some of the large accounts with over Rs 2,000 crore exposure are already under NCLT.
One of the reasons for creation of ICA was also because an anticipated increase in bad loans during this quarter and next and also because of the poor recoveries being made. Per Credit Suisse, for the RBI’s 12 large cases, creditors are likely to take an average 45 per cent haircut, or loss.
Meanwhile, ratings firm ICRA said 70 large corporate accounts, with loans worth Rs 3.8 lakh crore – including 34 accounts with Rs 2 lakh crore exposure belong to power sector alone – could come up for resolution by September 1, 2018. These accounts have outstanding debt of over Rs 2,000 crore. About 90 per cent of these accounts are already marked NPAs and are approaching the 180 day resolution deadline, failing which they could end up with the liquidation desk.
Source: July 25, 2018, Indian Express