Insolvency Code should have faster resolutions, says State Bank chief

Insolvency and Bankruptcy Code 2016 (IBC), the most important legal recourse to recover money from stressed assets pegged at over Rs 12 lakh crore, is seeing a limited pool of bidders, getting bogged down by low bids and suffering from delayed resolutions, said the top executive of India's largest bank.

IBC, however, continues to be the best ammunition to throw out errant borrowers and get in new promoters, the executive said. There is a need to come out with more amendments.

"When we try to get new bidders for stressed assets, we end up getting the same bidders in a majority of cases. There is often no depth in the bidding process at the NCLT (National Company Law Tribunal). There are only few people who are capable of taking up huge projects. This is the real situation in the country," SBI chairman Rajnish Kumar told DNA Money.

As a result, the price of stressed assets stays depressed in many cases. The SBI chief wants the lenders to take a hard stance on these occasions. "Whenever the bidders are trying to suppress the price of the asset, bankers will prefer to take the company to liquidation rather than sell it off at a huge discount to the new promoters. In quite a few cases, this has happened," Kumar said while emphasising that the "payment discipline is sacrosanct".

London-based Liberty House is a common name in many bids.

"We cannot give away assets just because a bidder has the money. When the banks decide to hand over the asset to bidders like the name you mentioned, it is subject to due diligence under Section 29 A of IBC 2016. The source of money is identified; for example, if it is foreign money it gets reported to RBI, There are guidelines for anti money laundering KYC and all that will be done," Kumar said. If everything is within the ambit of the law, then they succeed to acquire the asset.

Kumar believes that IBC is "one of the most significant reforms" in India. "We have to make it successful, and whatever roadblocks are there, need to be removed. The government is also very conscious of this. The NCLT courts will be augmented and the infrastructure beefed up," Kumar said.

On bank loans being concentrated among a few large corporate groups, Kumar said that many of "our mega projects" need "huge capital" and this capital can be brought in by only by them.

"There are only a few business groups who are capable of big project implementation, specially in the power and steel sectors where the projects are mega-sized."

In India, there are problems in realising receivables on time. "This is a ground reality in our country. So lenders should take a flexible approach," said Kumar. The cash flows and payment schedule should be structured in such a way that banks should be prepared for a six-to-eight month receivable cycle. The promoter needs to bring in a higher margin.

"Bankers should not insist on a working capital cycle which is not aligned to the ground reality so that payment is on time," Kumar said emphatically. "Fundamental changes are required in the lending methods. This is why RBI is coming out with Working Capital Demand Loan (WCDL), which will overhaul the lending methods and bring better co-ordination among banks," he said.

SCALING THE DEBT MOUNTAIN

Rs 12L cr
Stressed assets size pegged in the country 

Rs 90,000 cr
SBI has loans under various stages of resolution under IBC

35-40%
The recovery rate for such loans 

THE WAY AHEAD

• Bankers should not insist on a working capital cycle which is not aligned to the ground reality 
   
• There is a need to come out with more amendments to IBC
   
• Lenders should take a hard stance when the bidding price under IBC remains depressed
   
• Assets cannot be given away just because a bidder has the money