Mumbai: Taking cognisance of the mounting bad loans in the system, the Reserve Bank of India (RBI) is planning to overhaul the entire strategic debt restructuring (SDR) mechanism. This includes giving more power to lenders while taking haircuts during the resolution process, bankers aware of the development told FE.
According to bankers, the RBI is expected to allow lenders to convert debt into equity to initiate an SDR but without changing the current management. “The managements of most companies under SDR have suggested they are reluctant to hand over the reins of their companies to some external agency and have requested us not to replace them. We can do that only after the new regulations come in,” one of the bankers said, adding that of the few funds that have shown interest in pumping money into SDR companies, most do not have management expertise.
The RBI, sources said, is also looking to issue guidelines to allow banks a specific haircut in order to resolve a stressed loan. “In the absence of any specific guidelines from the RBI, we have to proceed very carefully on haircuts since it could be scrutinised by the CVC (Central Vigilance Commission),” a senior banker explained.
While the total bad loans in the banking system stood at R5.7 lakh crore in FY16, the total amount of loans recast by the corporate debt restructuring (CDR) cell stood at R4 lakh crore. Under SDR, lenders are estimated to have restructured loans close to R1 lakh crore.
Lenders are understood to have expressed concerns about the possibility of roping in new managements for companies where an SDR has been initiated.
Bankers explained that while some of the stressed companies are functional and are generating cash, they are not repaying banks since they have turned into non-performing assets (NPA) and are therefore not required pay their instalments.
“We are clawing back a minimal sum from the trust retention account (TRA) which is insufficient compared to their debt,” a banker said. The banker added that most banks have already classified Visa Steel, Electrosteel Steels, Bhushan Steel, Bhushan Power and Steel, and Jyoti Structures, among others, as NPAs as part of the central bank’s asset quality review.
Under SDR guidelines, lenders have 18 months from the date the SDR scheme is effective to find a buyer for the company. Should banks fail to usher in a new promoter, the asset would be classified an NPA.
SDR rules allow banks to convert debt at a price below the current market value or an average of closing prices during the 10 trading days before the joint lenders’ forum (JLF) decision.
They can now own at least 51% of the equity of the company. Following rules put out by the RBI in June, this year bankers have decided to try out a restructuring for a handful companies including Electrosteel Steels, Jyoti Structures, Lanco Teesta Hydro Power, Monnet Ispat, Coastal Projects, IVRCL, Gammon India and Visa Steel, among others.
Your email address will not be published. Required fields are marked *
Smart Meters Bill introduced to UK’s Parliament
AFC signs Master Cooperation Agreement with International Finance Corporation
First anniversary of UK’s National Cyber Security Strategy
2014 The Global Indian New Network (TGINN)