Why the drag in Essar Steel insolvency case makes lenders jittery | Business Standard News

With State Bank of India (SBI) putting its entire loan exposure in Essar Steel — the company involved in one of the largest insolvency cases — on the block, one message that’s come through loud and clear is of a loss of confidence in the Insolvency and Bankruptcy Code (IBC). The move was just the cue required for other public sector banks (PSBs) to join in. Union Bank of India, IDBI Bank, Central Bank of India, Dena Bank, Bank of India and Punjab National Bank have all put some of their bad loans on the block as there is an urgency to shore up the balance sheet by March 31.

Many of the big-ticket cases, especially those on the Reserve Bank of India’s (RBI’s) first list of non-performing assets (NPAs) like that of Essar Steel’s, were expected to be resolved by then, but it’s 540 days and counting for the insolvent steel company now.

SBI Chairman Rajnish Kumar explained the rationale for putting the Essar exposure on the block: “There is a time value for money…every day it is costing lenders Rs 17 crore, my share is nearly 25-30 per cent. So we don’t want to wait indefinitely.” SBI, however, has extended the deadline for the auction, as there is a silver lining in the recent National Company Law Appellate Tribunal (NCLAT) order, which has directed the Ahmedabad Bench of the National Company Law Tribunal (NCLT) to pass an order on the Essar insolvency case by January 31, failing which it would give an order on February 4.

A senior official of a public sector bank, which has put a significant exposure in NCLT assets on auction, said, “SBI’s move is a strong signal that the whole IBC process is getting dragged and bankers are frustrated.’’

As of December 31, 2018, of the 898 on-going CIRP (corporate insolvency resolution process) cases, 275 cases, or 31 per cent, have breached the 270-day deadline, the maximum time within which a resolution was to be achieved; 166 cases or 18.48 per cent are between the 180- to 270-day timeframe.

“Sixty-eight per cent of the CIRPs that have yielded a resolution plan so far exceeded the 270-day timeline,” Abhishek Dafria, vice-president, ICRA, pointed out. According to Insolvency and Bankruptcy Board of India (IBBI) data, there were 79 resolutions till December.

From the RBI’s first list, so far, there have been three resolutions: Bhushan Steel, Electrosteel Steel and Monnet Ispat & Energy. Except Era Infra Engineering (which was admitted late), the others remain unresolved even after 500 days.

Saurav Kumar, partner, IndusLaw, admits the timeline is questionable. But he is optimistic that 2019 will be a confidence-building year for execution of the Code. It appears that the loss of confidence is not just from the creditors’ standpoint but from bidders as well. From bidders’ perspective, Kumar says, there is some loss of interest. “There is no clear path in some scenarios, which has damaged some confidence. But if so many cases are being filed, there must be faith in the system,’’ he said. The recent NCLAT order in Essar Steel was significant in that respect, pointed out Kumar. “One can now approach the appellate tribunal and get a favourable order if there is any delay.”

The success of the IBC is not limited to resolution within the NCLT, however. Data shows that of the 1,484 cases admitted, 142 cases have been closed on appeal/review/settled. Also, 63 cases have been closed by withdrawal under Section 12A, that’s almost the number of resolutions till December.

Section 12A was brought in June 2018 that allowed withdrawal from the CIRP prior to the EOI (expression of interest) stage with the consent of 90 per cent of the lenders.

“It is a success in a way because it’s driven by IBC being in place. For cases withdrawn under 12A, it is likely that payments would have been made in full, hence creditors did not pursue further action under IBC,’’ Dafria said.

Also, Dafria pointed out that cases closed on appeal/review would help in unclogging the system. “Even introduction of 12A is a positive step as the CIRP may no longer get elongated once the corporate debtor is willing to pay its dues and the CoC is satisfied,” he said.

Within or outside the realm of the NCLT, resolutions ultimately mark the success of the IBC, pointed out a legal expert.

via Why the drag in Essar Steel insolvency case makes lenders jittery | Business Standard News

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