Banks in a hurry for resolution plans for large borrowers

The 6 month deadline set by the Reserve Bank to finalise the resolution plans for around 70 large stressed accounts worth over Rs 3.8 trillion is ending, prompting banks to burn the midnight oil to avoid bankruptcy proceedings against these defaulters who are mostly power producers.

Bankers prefer out-of-NCLT resolution as the bankruptcy process so far have seen them taking large haircuts, such as the massive 86 per cent in the case of Alok Industries.

The RBI circular asks banks to identify projects with even a day’s default as stressed assets, and conclude resolution proceedings in 180 days. The circular came into effect on March 1 and the 180-day deadline concludes on August 27.

If no resolution is reached, these accounts, which also include some EPC (engineering, procurement and construction) and telecom companies, will have to be referred to the NCLT to initiate bankruptcy proceedings, the RBI had said.

Banks are trying to come up with a resolution plan for these accounts as going to the NCLT will mean large haircuts.

In some of the stressed accounts, some lenders have already finalised the resolution plans, bankers said.

Almost three-fourths of these stressed assets worth Rs 3.8 trillion are power companies which had dragged the central bank to the Allahabad high court where the matter is still pending. That the matter is sub-judice also gives bankers some confidence that they may get some more time to resolve them out-of-court.

“A few banks have already sanctioned resolution plans for some cases and others are in the process of doing so,” said an executive director of a state-run bank.

Most banks are having their board meeting to approve a resolution plan or a management committee meeting to sanction credit to these defaulting companies, he added.

Recently SBI managing director Arijit Basu had said about eight power projects worth Rs 17,000 crore were expected to be resolved soon as lenders were nearing consensus on these accounts.

“We have looked at 13-14 accounts which would entail changes in the managements, investment etc. Of these, we are looking at seven to eight accounts very closely, to get some consensus among banks,” Basu had said.

Bankers, however, said the exact number of accounts where resolutions have been arrived at, or the number of cases that will be referred to the NCLTs, will be known only by Monday evening. There are reports that lenders have identified at least 60 NPA accounts worth Rs 3.5 trillion against whom bankruptcy proceedings will be initiated.