A day after debt-ridden Reliance Communications sold a bulk of its assets to Reliance Jio to repay lenders, SBI Chairman Rajnish Kumar told BloombergQuint that the transaction is an indication that promoters are getting serious about clearing their dues. Kumar expects the pace of resolution to pick up and sees a number of the large accounts getting resolved in the next six months.
“This deal shows the way. If promoters are willing to settle and there are good quality assets, then there is no need for banks to take any haircuts,” said Kumar while declining to comment on the specifics of the transaction.
Earlier this week, Anil Ambani, chairman of Reliance Communications had said that proceeds from the deal will be used to repay lenders and exit the Strategic Debt Restructuring Scheme, under which banks were expected to convert Rs 7,100 crore in debt into a majority equity holding. The plan had been complicated by the decision of Reliance Communication’s Chinese lenders to file an insolvency plea against the company. It is not known whether that insolvency plea is being withdrawn.
For domestic banks, who are in the midst of resolving a number of large stressed accounts, the deal comes as a relief. Reliance Communications, with a debt of Rs 45,000 crore, was among the biggest stressed accounts for the sector. 12 of the other large stressed accounts are currently being resolved under the Insolvency and Bankruptcy Code (IBC).
Kumar expects the pace of resolution in these large accounts to pick up in the first six months of 2018. Many of these accounts will hit the 270-day deadline for resolution set under the IBC during this period.
We are very much in the resolution phase. In the next 3-6 months, the accounts which got referred to IBC in the first phase, the resolution plans for them will be put in place. The cases which have been referred recently will get resolved soon after. Between January and June, hopefully, there will be a significant resolution.Rajnish Kumar, Chairman, State Bank of India
When asked whether restrictions on existing promoters bidding for their own assets would delay the process of resolution, Kumar said he doesn’t see this as a risk. The intent would be to complete the process within the 270 day period, said Kumar. He added that he doesn’t expect the restrictions to impact the value recovered from the assets up for bidding.
Every asset has its fair enterprise value. It is my firm belief, that creditors will be able to realise the fair value of the asset. As far as promoters are concerned, there is not a 100 percent bar but they have to clear their overdues to become eligible to submit resolution plans.Rajnish Kumar, Chairman, State Bank of India
Kumar added that there is considerable interest, particularly for assets in the steel sector. Accounts including Essar Steel, Monnet Ispat and Bhushan Steel are among the accounts being resolved under the aegis of the IBC.
While a resolution is expected to gain pace, banks may still face pressure from increased provisioning against stressed accounts. Banks are required to complete provisioning against the second list of nearly 30 stressed accounts by March, confirmed the SBI Chairman.
At least two quarters would be relatively tough because you have to build up provisions. But otherwise, the situation on the ground is improving in the sense that fresh accretion to NPAs is moderating. If we look at provisioning on existing accounts, that has to be taken care of. But otherwise, provisioning requirement on fresh slippages will return to normal.Rajnish Kumar, Chairman, State Bank of India
Indian banks have been weighed down by a spike in reported bad loans over the past two years. Gross non-performing assets (NPAs) have risen to Rs 8.4 lakh crore as of the September, 2017 ended quarter compared to Rs 3.4 lakh crore at the end of the September, 2015 quarter. The process of recognizing bad loans is now coming to a close. In its December Financial Stability Report, the RBI said that bad loans may be close to ‘bottoming.’
The government has also committed to recapitalizing state owned banks via a Rs 2.11 lakh crore package. The details of the capital to be infused into individual banks are awaited.
Kumar said that with a bulk of the balancesheet clean-up behind banks, they can start to shift the focus back to growth. The pick-up in credit demand, however, may be moderate, he said.
If the estimated credit growth target was 5 percent this year, for instance, then we would like to achieve 9-10 percent credit growth next year.Rajnish Kumar, Chairman, State Bank of India
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