Bad debts: Indian banks appoint insolvency professionals
Lenders have deployed insolvency professionals to deal with seven of the 12 top bank defaulters identified by India's central bank
After India’s central bank identified 12 accounts, which amounted to 25% of bad debts in the banking system, banks are now in the process of giving mandates to insolvency professionals. A bank with the highest exposure in working capital loans, and not term loans, will decide on the insolvency professionals, reports Business Standard.
Amtek Auto Ltd (Rs 140.74 billion or US$ 2.18 billion) has gone to Ernst and Young, Essar Steel (Rs 372.84 billion or US$ 5.78 billion) to Alvarez & Marsal, Bhushan Steel (Rs 444.78 billion or US$ 6.89 billion) to Deloitte, Electrosteel Steels (Rs 102.74 billion or US$ 1.59 billion) to PwC, Jyoti Structures Ltd (Rs 51.65 billion or US$ 800 million) to BDO, while Monnet Ispat & Energy (Rs 121.15 billion or US$ 1.88 billion) and Alok Industries Ltd (Rs 220.75 billion or US$ 3.42 billion) have gone to Grant Thornton.
The mandates for ABG Shipyard (Rs 69.53 billion or US$ 1.08 billion) and Bhushan Power & Steel Ltd (Rs 372.48 billion or US$ 5.77 billion) will be decided this week, while banks have not yet called bids for Lanco Infratech Ltd (Rs 443.65 billion or US$ 6.87 billion), Era Infra (Rs 100.65 billion or US$ 1.56 billion) and Jaypee Infratech (Rs 96.35 billion or US$ 1.49 billion).
However, the Reserve Bank of India (RBI) directive to lender banks to make steep provisions on loans referred to bankruptcy courts has put them in a spot, reports Economic Times. The RBI has mandated banks to set aside 50% of the loan as provision the moment a case is referred to the National Company Law Tribunal (NCLT), and write off the entire loan if a case goes for liquidation. Interestingly, the RBI had directed banks to take 12 big defaulters to the NCLT.
Earlier as per Corporate Debt Restructuring, only 5% provisioning was required, which was later increased to 15%. With 50% provisioning, banks will have to set aside huge sums for the purpose, which could take a toll on its finances.