Bankruptcy code brings good news for SBI

So far, among the IBC cases, SBI has been able to recover Rs 8,500 crore from Tata Steel’s acquisition of Bhushan Steel. Another Rs 1,500 crore is in an escrow account on account of Electrosteel Steels.

State Bank of India, the country’s largest lender, is expecting to recover around Rs 30,000 crore through the resolution process under the Insolvency and Bankruptcy Code in the current financial year.

Total recovery expected during the year is Rs 40,000 crore, of which the recovery from the Reserve Bank of India’s first and second lists of stressed assets referred for resolution under the IBC will be between Rs 25,000 crore and 30,000 crore, Pallav Mohapatra, deputy managing director (stressed assets resolution group), SBI, said on Saturday.

The balance will come from one-time settlement and sale to asset reconstruction firms.

SBI’s non-performing loans stand at Rs 2.2 trillion. The bank's exposure in the RBI’s first list of stressed accounts was Rs 48,000 crore and in the second-list accounts, it was Rs 28,000 crore, Mohapatra said on the sidelines of a Confederation of Indian Industry event on the IBC.

So far, among the IBC cases, SBI has been able to recover Rs 8,500 crore from Tata Steel’s acquisition of Bhushan Steel.

Another Rs 1,500 crore is in an escrow account on account of Electrosteel Steels.

The Essar Steel case is in court but a resolution is expected, as in the case of Binani Cement. SBI's exposure in the latter is small, though.

Asked whether SBI would be doing a one-time settlement with companies on the second list, Mohapatra said that in cases where SBI was the lead bank, it would not do so.

Some of the companies had approached the bank for OTS.

“We will not be doing OTS. We will not be selling it to ARCs. We will go to the NCLT. Where we were the lead in the second list, we have filed with the NCLT. Whether these are going to be admitted or not, the court will decide," he said.

Mohapatra said that in all the cases where SBI was the lead, it had called up the loans and hence 100 per cent dues would have to be paid.

Speaking at the event, Mohapatra said 2018-19 would be a significant year for resolution and from the next financial year there would be a lot of positives.

Quoting SBI chairman Rajnish Kumar, he said 2019-20 would be the year of happiness.

Mohapatra admitted that the series of restructuring tools had not worked.

He said hardly 2 per cent of the corporate debt restructuring cases were successful, none of the S4A (Scheme for Sustainable Structuring for Stressed Assets) cases was successful, and SDR (strategic debt restructuring) was a big failure.

"I agree all cases should not go to the National Company Law Tribunal, but we will see the viability of the cases," he said, while talking about RBI's revised framework of resolution of stressed assets.

The RBI came out with a revised framework in February that replaced earlier restructuring schemes.

It includes a 180-day deadline for implementation for debt over Rs 2,000 crore, failing which the IBC will be triggered.

Mohapatra said that for the bank to consider restructuring outside the IBC, viability would be studied by the bank.

"I want equity to be visible from the promoter's side. Bank is only doing the facilitation programme."

'Objective of IBC is resolution, not liquidation'

The lop-sided ratio between liquidation and resolution under the Insolvency and Bankruptcy Code is not alarming. Speaking at a Confederation of Indian Industry event on IBC, M S Sahoo, chairperson, Insolvency and Bankruptcy Board of India, said around 818 corporate debtors had been admitted to the resolution process, of which 130 had been completed. Of the 130 cases, around 100 were probably liquidated. Sahoo asked if it was unusual, or a cause for concern. But he explained that from the data available for 87 companies, 79 of them were either in the Board for Industrial and Financial Reconstruction (BIFR), or were not going concerns. Sahoo cited this as the reason the process should be started early when the company is in the pink of health. "We should look at what is there is in the ground and not in the air,” he said. Sahoo pointed out that the focus was to achieve resolution in the corporate insolvency resolution process. “Resolution plan is not just a bidding mechanism or price discovery mechanism...our focus is on resolution. The objective is to keep the firm alive, to maximise the value of the asset and balance the interests of all stakeholders. It is definitely not liquidation,” he said. He also said the IBC was like a behavioural law, as many companies were now closing cases before the adjudicating authority. On the latest Ordinance promulgated on June 6, Sahoo said that as soon as the ordinance came, the thought process was how to operationalise it.

Photograph: Shailesh Andrade/Reuters