More debt-laden companies likely to be dragged to NCLT

With the Reserve Bank of India (RBI) withdrawing all debt restructuring schemes, more debt-laden companies are likely to be dragged to the National Company Law Tribunal (NCLT) or face change in the management.

The new set of guidelines mandate banks to make a 15% provisioning as soon as an account is restructured and report a default of more than 30 days to the RBI's centralised corporate database. Instead of restructured accounts, they will be called special mention accounts where definite timelines for resolutions have to be put in place.

Hari Hara Mishra, director, UV Asset Reconstruction Company, said, "In last 17 years from 2001, RBI had issued 28 circulars relating to restructuring. For various reasons, all these did not yield the desired outcome. The fresh guidelines will improve the recognition and resolution of non-performing assets faster and give greater flexibility to lenders in restructuring." According to him, the guidelines will facilitate uniformity in asset classification across banks and act as a deterrent to efforts at ever-greening.

A senior SBI official told DNA Money, "Not many loans are remaining in these schemes for the bank. Whatever is remaining will be taken out, and a resolution plan with definite timelines will be set in motion. But it is not necessary that the NCLT cases would go up. Even without a joint lenders' forum (JLF), bankers can meet to set up a resolution plan."

Karthik Srinivasan, group head, financial sector ratings, Icra, said in a release, "In the short-term, this will increase the pain for the borrowers as well the lenders, while the early identification of stress and resolution will prevent future ever-greening of loans and ensure a good financial health for the banking system in long term."

Rating agency Icra said in a report, "With 40 large accounts accounting for 33% of the GNPAs of the banks already referred by RBI for the resolution under NCLT, lowering the threshold for resolution to Rs 2,000 crore per borrower will enlarge the overall quantum of debt being resolved on a fast-track basis." As per data compiled by Icra, around 50 large borrowers have a banking exposure of Rs 2,000 crore or more and will need resolution by September 1, 2018. The total borrowings of these companies stand at Rs 2.46 lakh crore.

Some of these accounts are already classified as NPAs and may not add to the overall stock of NPAs. However, if the resolution plan entails restructuring of the loans, the standard loans will get classified as NPAs. Also, if the resolution plan fails to get implemented by September 1, 2018, the banks will need to initiate proceedings under IBC against these borrowers.

It will also be difficult for bankers to push loans into various types of restructuring schemes so that non-performing asset tag can be avoided.

RBI has also tightened the criterion for up-gradation of NPA accounts or accounts which gets classified as NPAs upon restructuring under the resolution plan approved by JLF. The accounts can be upgraded if the borrower has demonstrated a track record of timely debt repayments and has paid at least 20% of the principal outstanding at the time of resolution plan, subject to a minimum investment grade credit rating from a rating firm. This is against the earlier norm for restructured accounts, which is one year from the commencement of the first payment of interest or principal, whichever is later.

"With tightening of the criterion for up gradation of loans, the incentive for banks to defer the recognition of problem loans by creating a ballooning repayment schedule with back-ended amortisation of principal will be discouraged," Srinivasan added.

CLEAN-UP OPS

• Banks now have to report a default of more than 30 days to the RBI’s centralised corporate database
   
• For special mention accounts, definite timelines for resolutions have to be put in place