A year after Reserve Bank of India’s (RBI) decision to nudge banks in referring 12 large defaulters to the National Company Law Tribunal (NCLT), only two cases – Bhushan Steel and Electrosteel Steels – have been resolved.
While Vedanta has acquired the management control of Electrosteel Steels after depositing Rs 5,320 crore in an escrow account, Tata Steel has acquired Bhushan Steel for Rs 35,200 crore. A few other cases like Jyoti Structures, Bhushan Power & Steel, Monnet Ispat are grappling with last-minute litigation and could see resolutions once these are settled. Others like Lanco Infratech could be liquidated as it failed to get a resolution plan approved within the stipulated 270 days.
A recent report by Jefferies pointed out that the initial expectation was of resolution of the 12 cases (NCLT 1) by mid of 2018 and the following 28 cases (NCLT 2) by March, 2019, which would have improved the economic sentiment. “Unfortunately though, only two resolutions have seen the light of day, while the rest hangs in various stages of litigation or still being admitted into NCLT,” the report added.
Despite the slower-than-expected results from the NCLT cases, bankers prefer it over other channels of recovery. India’s largest bank, State Bank of India (SBI) has an exposure of Rs 77,626 crore to the two lists of NCLT accounts, while its total corporate bad loans is around Rs 1.62 lakh crore.
These two large resolutions under the Insolvency and Bankruptcy Code (IBC) also reinstate what analysts have been saying for a while now — that the resolution of stressed assets beyond the steel sector looks difficult. Karthik Srinivasan, senior vice-president, Icra recently said, as of now, there is a heightened interest in the steel sector given that it is turning around. “So, resolution could be faster in that segment but since the intent is to have a timely resolution of all accounts, you would need to take a decision on those as well,” he said.
Srinivasan added that interest in the non-steel sector cases in the NCLT has been very low and possibly on such cases banks would have to take higher haircuts.
A CLSA report in March, pointed out that its bottom-up assessment of the top NCLT cases (with Rs 4 lakh crore of debt; constitutes 5% of total loans and 45% of non-performing assets) indicates that haircuts will range from 20% to 90%; the total haircut is likely to be less than 60%. “Large steel projects should see the least haircuts while EPC & power sectors the highest; NCLT1 (first list) cases are likely to see higher recovery rates vs NCLT2 (second list),” CLSA said in the report.
For instance, the lenders took a 60% haircut in the Electrosteel Steels’ resolution and a 37% haircut in the Bhushan Steel’s resolution. Meanwhile, lenders have reiterated that recoveries through the Insolvency and Bankruptcy Code (IBC) would entail some haircut. Rajnish Kumar, chairman, State Bank of India (RBI) had told reporters that while some amount of haircut was inevitable, it should not be very steep. “I don’t mind some haircut, but I don’t want to go bald,” he had said.
The RBI, had on June 13, had asked banks to refer a dozen troubled companies — with a combined debt of close to Rs 2.4 lakh crore — to the NCLT, following several failed attempts at loan recovery. Again, in August, the central bank had sent a list of 28 companies with a total debt of Rs 1.2 lakh crore, to be referred to the NCLT by December 31.
Moreover, with RBI’s February 12 circular, pushing banks to use the NCLT route for all loans of Rs 2,000 crore and above if they fail to resolve it within 180 days of default, could see a flurry of new cases being referred to the bankruptcy court.