Big banks have entered the final stage of clean up with around Rs. 4 lakh crore worth of bad los going to resolution process under the Insolvency and Bankruptcy Code. With the deadline of 180 days on RBI for resolution of stressed assets coming to an end, banks are now expected to initiate debt resolution proceedings against defaulters. Allahbad High Court refused to provide any relief to the power companies making India Inc last ray of hope fade away, there is no big relief left. A Parliamentary standing committee on energy had even warned that the new norms will sound the death knell for power companies, which collectively owe over Rs 5.6 lakh crore to domestic banks.
With Allahabad High Court now refusing to intervene in the RBI move, it is a Catch-22 situation for banks. While they are free to initiate winding-up proceedings against defaulting companies, they will have to take big hair cuts in case they are forced to put the assets under the block. Industry and banks have been opposing the new guidelines, saying that it is virtually impossible to find a resolution in 180 days. On ET NOW’s India Development Debate, banking experts and industry representatives discussed the big NPA deadlock in the light of the Allahabad High Court verdict. Here are the key takeaways:
SS Mundra (Former Deputy Governor, RBI)- As far as banks are concerned, this is not an event which is unknown. Many of these accounts were already under stress. Many of these accounts were already under stress. There is large economic interest which is locked in these projects. What is concerning to me is the positioning of NCLT, solution is not always the resolution. There is a need for all the stakeholders to review the situation.
Alok Dhir (Managing Partner, Dhir & Dhir Associates)- In so far as power and infra cases are concerned, we have to look differently. Issue with power is more macro in nature. Not commercial, but policy dependent in nature. We have to make a policy which is responsive. We have currently 12 benches of NCLT, which have large workload in Delhi, Bombay, and Calcutta. We have to look at these cases because of 180-day deadlines with a perspective of how to salvage them. We have to protect stakeholders.
Cyril Shroff (Managing Partner, Cyril Amarchand Mangaldas)- many projects have concession agreements. The financing is typically of 10-12 years, and at the end, you have to refinance. Infra sector has special issues. Bulk of the power sector will go into liquidation. The nature of power sector is different. I think there is going to be a deep haircut. I don’t think RBI will change its stand. I don’t think the 270-day process is going.
Pratip Chaudhuri (Former Chairman, SBI)- It is a good case but wont go very far, not alot will change. Poor financing of discoms has led to their undoing. Power is not like steel. It’s not internationally traded. Where do you sell powerRs You can’t hold and store it. You have to go to the discoms. Discoms are not issuing power purchasing agreements. The NCLT system should be flexible. We should have more NCLT benches.
Mythili Bhusnurmath (Consulating Editor, ET Now)- There is a small window of opportunity given by the High Court, the banks don’t have much option but to refer power sector NPAs to NCLT. RBI circular has a generic approach. NCLT, as it stands today, the number of benches is inadequate. Most don’t have basic office infrastructure. Amendments to IBC allowed promoters of small corporates provided they are not willful defaulters to bid. Large corporates were not allowed for political backlash. We need to show a little bit of pragmatism.