15 March 2019: With little possibility of the two big ticket IBC cases — Essar Steel and Bhushan Power and Steel — happening this fiscal, the Department of Financial Services (DFS) will meet the PSU banks on March 18 to review the status of their non-performing assets (NPAs).
The DFS has set an NPA recovery target of Rs 1.8 lakh crore for the public sector banks (PSBs) which has to be achieved by March end.
The meeting will be conducted via video-conferencing, said a banking source, adding that a senior DFS official will review the NPA recovery status of individual banks and the overall target.
Last year, Financial Services Secretary Rajiv Kumar had said that recoveries of about Rs 1.8 lakh crore were assessed by the banks which were from the cases under the Insolvency and Bankruptcy Code (IBC) and those outside it.
So far the recovery has been Rs 1.1 lakh crore and the Essar Steel resolution may still happen, the Finance Ministry hopes.
The two key NCLT cases of Essar Steel and Bhushan Power and Steel have not seen a resolution yet. The National Company Law Appellate Tribunal (NCLAT) has now asked the Ruias, Essar Steel’s previous promoters, to first clear dues of nearly Rs 1.4 lakh crore to consider its bid for Essar Steel.
The Ahmedabad bench of the National Company Law Tribunal (NCLT) has already approved ArcelorMittal’s Rs 42,000 crore bid for Essar Steel last week, which has now been challenged by the Ruias. So a decision on Essar Steel resolution is likely to extend beyond this fiscal, the Finance Ministry feels.
The State Bank of India has over Rs 15,000 crore exposure to Essar Steel while the Bank of India and the Punjab National Bank will get Rs 1,800 crore and Rs 2,500 crore, respectively, from the Essar resolution.
“If the resolution does not happen by March-end, the banks will have to make additional provisioning of Rs 10,000 crore,” said a source.
The total claims admitted by the financial creditors in Essar Steel and Bhushan Power and Steel, the two big ticket cases in the Reserve Bank of India’s (RBI) list of 12 stressed accounts, are Rs 49,479 crore and Rs 47,145 crore, respectively.
The Finance Ministry was expecting the resolution of five to six accounts from the RBI’s list by March-end. The resolutions achieved so far are that of Bhushan Steel, Electrosteel Steels and Monnet Ispat and Energy.
The 12 large accounts where resolution under the IBC was initiated by the banks mandated by the RBI have claims of Rs 3.50 lakh crore.
According to ratings firm Icra, fresh NPAs in the banking sector are expected to moderate to 1.9 per cent to 2.4 per cent in FY 2019-20 due to an aggressive recovery drive and write-offs by the banks. The public sector banks are expected to turn profitable after four consecutive years of losses.
Sources in the Finance Ministry said that big ticket recoveries were due this month from Essar Steel and Bhushan Power and Steel, which together can fetch over Rs 60,000 crore. And they are just a few among the many.
Icra expects gross NPAs of the banking sector to be Rs 8.3 lakh crore or 7.9 per cent for March 2020, as compared to the estimated 9.2 per cent for March 2019.
However, even with the new bankruptcy law in place, recoveries through the NCLT have not been very large, it said.
But recoveries of around Rs 1.6-Rs 1.7 lakh crore from the accounts referred to the NCLT amount to 75-80 per cent of the recoveries from these accounts, which is higher than the provisions made by these banks.
In 2018, over Rs 80,000 crore was recovered from various corporate debtors under the IBC, according to the Ministry of Corporate Affairs.