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.