Videocon bid and, now, U-turn show banks defanging IBC by letting buyers acquire stressed assets at basement bargains
Indeed, the sale, at Rs 2,962 crore, would have left the lenders with a paltry 5% of their dues of Rs 64,838.63 crore; the fair value was assessed at Rs 4,069 crore.
The U-turn by the consortium to Videocon Industries, which now wants to call for fresh bids for the ailing firm, is a sad commentary on how casually banks are dealing with recoveries. Else, given the winning bid was making a mockery of the insolvency process, the banks would not have approved it in the first place. The NCLT Mumbai bench had red -flagged how uncannily close the winning bid—put in by Anil-Agarwal’s Twin Star Technologies—was to the liquidation value. The bench, comprising H P Chaturvedi and Ravikumar Duraisamy, had observed in its order on June 9 that “surprisingly, the resolution applicant also valued all the assets and liabilities of all the 13 companies and arrived at almost the same value as the registered valuers”.
Indeed, the sale, at Rs 2,962 crore, would have left the lenders with a paltry 5% of their dues of Rs 64,838.63 crore; the fair value was assessed at Rs 4,069 crore. On Monday, State Bank of India approached the appellate tribunal (NCLAT) asking the Committee of Creditors (CoC) be allowed to call for a fresh round of bids for 13 firms of the Videocon Group. Bankers need to be far more serious about recovering their dues; the steep haircuts and small proceeds from OTS (one-time settlements) suggests they are not working hard enough. Indeed, if the Videocon sale was a shocker, the deal with Siva Industries, in which the lenders agreed to take a near 94% hit, was equally bad. The NCLT Mumbai bench had, in a scathing indictment, observed in the case of Videocon that “Even if the confidentiality clause is in existence, in view of the facts and circumstances … a doubt arises upon the confidentiality clause being in real-time use”.
Without any aspersions cast, bankers must redeem themselves; it can’t be good for their reputation if the judiciary is hinting at malfeasance. Indian promoters are known to be able to game the system, and bankers must try and prevent that; they cannot be making it easier for prospective bidders to win companies at throwaway prices.
The entire purpose of the IBC legislation was to empower lenders, who, for decades, could not fight promoters because the laws were so weak. However, going by the several instances where the haircuts have been very steep, they do not seem to be using the law effectively. That is unfortunate. That many of these bad loan exposures have been fully—or almost fully—provided for, cannot mean recovery efforts should slacken. If the balance sheets of state-owned banks are in reasonably good shape it is because the government has pumped in Rs 3. 4 lakh crore— taxpayer money—between FY16 and FY21. Without this capital, the banks would have been struggling given the Rs 15-20 lakh crore of non-performing assets (NPAs) that they created all by themselves. The IBC has been amended, from time to time, to make it more effective and help bankers. For instance, Section 12A was brought in to enable the withdrawal of a case from the insolvency process if 90% of the CoC is in favour. Before that section 29A was inserted to ensure wilful defaulters couldn’t get back their businesses. Bankers need to make sure they don’t derail the process by helping buyers of stressed assets acquire them at basement bargains. The Videocon episode is turning out to be worrying; if lenders can’t shoulder the responsibility of dealing with their recoveries, some changes to the law may be needed.