19 February 2018

Editor's Space

THROWING BABY WITH BATHWATER

Ongoing resolution of current NPA mess is getting messier. According to CRISIL Ratings, banks have classified only two-thirds stressed loans as non-performing assets, it projects bad loan ratio to rise by a percentage point to 10.5 per cent starting March 2018. CRISIL estimates total amount of stressed loans, including NPAs and standard assets under pressure currently, to be at `11.5 trillion or 14 per cent of the system. Assets under pressure comprise not-yet-recognised bad loans, recognised as NPAs in one bank but not in others, restructured standard accounts and stressed assets structured under schemes, like strategic debt restructuring under 5/25 and S4A, it said. Gross NPAs will be 10.5 per cent of advances beginning FY 2018-19, up from 9.5 per cent last FY March 2017, according to CRISIL Ratings, it adds that infrastructure, power, engineering and construction sectors, contribute bulk of the NPAs. Faster resolution of stressed accounts through the Insolvency and Bankruptcy Code (IBC) and various structuring schemes, is critical to improving banks’ asset quality, CRISIL cautions.

According to corporate lawyers, revised IBC ordinance may hurt commercial outcomes of NPA resolutions. Specifically, the new clause Section 29 (A) (C), is an exception to disqualification which refers to ‘failure to make payment of all overdue amounts with interest thereon and charges related to non-performing asset.’ But it’s unclear whether this cure applies to asset under resolution at NCLT, or is it alluding to some other assets. Is the revised IBC disqualifying somebody who has an NPA, or is it disqualifying a promoter in that particular case? Somebody is likely to challenge it, because you are potentially barring an honest promoter from coming back, it does not make a distinction between an honest defaulter and not-so-honest defaulter. Honest intent of revised IBC may be to prevent unscrupulous defaulters from misusing IBC provisions, but it will depend on whether the NPA bid is a promise to pay in future or is it a bid with cash-on-table, in which case why does it matter if the bidder is a past defaulter.

Ruias have tied up with Russian investment bank VTB Capital to retain control of their debt-laden steel assets, submitting their bid along with a letter of comfort from VTB Capital. Essar Steel is among 12 large NPAs identified for loan resolution under IBC.
While Ruias should be definitely barred from NPA bids due to their record defaults, other NPA bidders could be honest defaulters due to extraneous reasons. Barring them from NPA bids is tantamount to “Throwing out the Baby with the Bathwater”!!!

Wishing our readers a HAPPY, PROSPEROUS, 2018….. fortunately EXCON 2017 has given it a good head start!!

 

Satish P. Chavan
Associate Editor




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