ET: Banks seek RBI nod to recast Rs 3 lakh crore loans minus downgrade

3 June 2020: Indian lenders have asked the central bank to allow them to restructure loans worth about Rs 3 lakh crore given to hospitality, aviation and commercial property companies without downgrading these assets on their books. These sectors are among the worst-hit by the Covid-19 pandemic and subsequent lockdown.

At the end of April, banks had an exposure of Rs 2.3 lakh crore to commercial realty, Rs 45,862 crore to hospitality businesses, and over Rs 30,000 crore to aviation firms. Banks have told the Reserve Bank of India (RBI) that without the restructuring relief, nonperforming assets (NPA) on their balance sheets will surge.

A similar request was made by the heads of state-run lenders during their meeting with the finance minister two weeks ago.

“We are in talks with RBI to extend help to worst-hit sectors. We see huge slippages in aviation, hospitality and commercial realty if restructuring benefits are not extended to past loans,” said a banker aware of the talks between banks and RBI.

Indian carriers are currently facing their worst crisis in history and have been in a no-revenue situation for two months due to the lockdown. With only a limited resumption of domestic operations late last month, bankers believe that airlines will not be able to service debt, leading to high slippages.

Rating agency ICRA has estimated that the aviation industry will need funding of nearly Rs 35,000 crore in the next three years.

In the hospitality industry, several hotels might shut permanently. The commercial real estate sector is also facing demand destruction, with experts projecting a 25 per cent fall in space rentals or purchases.

Rating agency Crisil has predicted India’s growth will contract 5 per cent in fiscal 2021 because of the pandemic and lockdown with a contraction of 25 per cent in the first quarter. According to Crisil, NPAs are set to swell to nearly 11.5 per cent of the total credit in the banking system from 9 per cent now. The rise in bad loans could bring with it capital requirements of $25-50 billion over two years for lenders, a large part of which is expected to fund provisions, as per a Fitch Ratings estimate.

Source: Economic Times

LM: Lenders set terms for DHFL liquidation after big loss

23 Jan 2020: Indian lenders set preliminary terms for companies wishing to bid for Dewan Housing Finance Corp.’s assets, people with knowledge of the matter said, as the nation’s bankruptcy courts attempts to resolve its first shadow bank insolvency.

The assets have been divided into three groups — mortgages, loans to builders of government-assisted housing, and project financing, the people said, asking not to be identified because the discussions are private. They have set minimum net worth and asset requirements for the bidders in each category, the people added.

The debt resolution process for Dewan Housing is being closely watched because it’s likely to create a precedent for other shadow lenders affected by the crisis which broke out in 2018 with a series of defaults at a major infrastructure lender. Dewan Housing, which has a market capitalization of ₹500 crore ($70 million), reported a ₹6,640 crore loss for the quarter ended Sept. 30 late on Wednesday.

Dewan was one of the worst affected by the crisis, prompting the Reserve Bank of India (RBI) to take over management of the company in November and start bankruptcy proceedings. Representatives at Dewan and Union Bank of India, which is leading the creditor’s group, didn’t immediately respond to emails seeking comment.

Bidders for the mortgage loans will need a minimum net worth of ₹3,500 crore and ₹10,000 crore of assets under management, the people said. While investors for the builder’s loans taken out under the government’s slum rehabilitation program require net worth of ₹500 crore and assets under management of ₹1,000 crore, one of the people said.

For project loans, the requirement is ₹1,000 crore of net worth and ₹4,000 of assets under management, the person added.

The decision was taken at a lenders meeting last week, at which advisory firm Grant Thornton was appointed to conduct an audit of Dewan’s transactions, the people said. The lenders also appointed real estate specialists JLL India and RBSA Advisors to value Dewan’s assets and give them an assessment of the losses they are likely to face, the person added.

Dewan Housing has about ₹3,800 crore in outstanding inter corporate deposits, the company said in a filing Wednesday, adding that it’s uncertain the amount can be recovered. It has set aside ₹2,400 crore as provisions to cover this.

“The company is undergoing substantial financial stress since second half of the previous financial year,” Dewan Housing said. “As a result, the company’s ability to raise funds has been substantially impaired and the business has been brought to a standstill.”

Source: Live Mint

FE: IDBI to meet RBI this week; seeks to exit PCA framework

16 January 2020: Since coming under the PAC, more than a third of its entire book became dud loans in Q2 of FY18, with the gross NPA ratio touching 32 per cent and the net NPAs at 17.30 per cent.

LIC-owned IDBI Bank, currently under prompt corrective action since May 2017, is expected to hold meeting with the RBI this week to seek removal of operational restrictions, according to sources. The lender will make a presentation to the Reserve Bank of India on its improved financial position, the sources said, adding the management is hopeful of coming out of the PCA framework by the end of this month. The RBI had placed IDBI Bank in May 2017, after it had breached the thresholds for capital adequacy, asset quality (net NPAs was over 13 per cent in March 2017), return on assets and the leverage ratio.

Since coming under the PAC, more than a third of its entire book became dud loans in Q2 of FY18, with the gross NPA ratio touching 32 per cent and the net NPAs at 17.30 per cent. “The presentation to the RBI will be on the key financial numbers. On the capital front and in terms of net NPAs, we have been able to make progress,” the sources told PTI. A query sent to the bank did not elicit any response.

The PCA norms trigger if a bank’s net NPA crosses 6 per cent or if CRAR (capital to risk weighted assets) is below the regulatory requirement of 10.88 per cent as of March 2019. In the quarter to September 2019, its net NPA stood at 5.97 per cent and tier-1 capital and CRAR improved to 9.52 per cent and 11.98 per cent, respectively. Capital infusion through recap bonds by the government in Q2, and also from LIC, and recovery from stressed accounts have also helped the bank in shoring up its capital position, another person familiar with the matter said.

In the second quarter of FY20, the bank received Rs 4,743 crore from LIC, which holds 51 per cent stake, and Rs 4,557 crore from the government which still owns 47.11 per cent. Another positive is the recovery of close to Rs 3,000 crore from the NCLT resolution of Essar Steel and Ruchi Soya in the third quarter, further strengthening the capital position, the sources said.

The only area where the bank is still lagging is return on assets (RoA) which continues to remain negative for the fourth consecutive year. However, the bank is hoping some relaxation on the RoA front after the RBI eased the same for five other banks last year. In September quarter of this fiscal, IDBI Bank had reported a net loss of Rs 3,459 crore, marginally better than Rs 3,602 crore in the year-ago period.

In FY19, RBI removed five banks — Bank of India, Bank of Maharashtra, Oriental Bank of Commerce, Allahabad Bank and Corporation Bank — from the PCA framework in two phases after capital support from government that resulted in improvement in their financial parameters. Capital infusion helped these lenders meet requisite capital thresholds and reduce their net NPA levels to below 6 per cent. The monetary authority as an effort to enhance its supervisory framework had introduced the PCA framework, based on structured early intervention mechanism, in December 2002.

The framework was subsequently reviewed by the RBI keeping in view the international best practices and recommendations of the working group of the Financial Stability and Development Council (FSDC) on resolution regimes for financial institutions and Financial Sector Legislative Reforms Commission. The revised PCA framework was issued on April 13, 2017 and implemented on March 31, 2017.

The Financial Express reported

IE: State-owned banks step up NPA sale to ARCs to clean balance sheet

12 September 2019: Public sector banks have increased the pace of sale of non performing assets (NPAs) to asset reconstruction companies in order to trim their NPAs. State-owned banks have put up nearly Rs 10,000 crore worth of bad loan assets for sale to ARCs since July, more than double of total bad debt of Rs 4,000 crore that was sold to ARCs in April-June.

After the Reserve Bank of India amended its stressed asset resolution framework, banks no longer have the compulsion to take NPA accounts to the Insolvency and Bankruptcy Code (IBC) for resolution. They now have the flexibility to resolve bad debt.

The RBI’s Prudential Framework for Resolution of Stressed Assets issued on June 7, 2019, which replaced the earlier controversial February 12, 2018, circular on resolution, allows banks sale of stressed standard assets that are in default, as part of the resolution process. “It’s not feasible to take every resolution case to the insolvency court as that is time consuming and slows down the recovery process. We have identified large number of assets that can be resolved by sale to ARCs,” a senior banker with a state-owned bank said, asking not to be named.

Punjab National Bank this month put up for sale nearly a dozen NPA assets to recover dues of more than Rs 1,234 crore. The accounts include Visa Steel, which has dues of Rs 441.83 crore, IndBarath Energy (Utkal) Rs 414.23 crore, Aster Private Ltd Rs 113.57 crore and Om Shiv Estates Rs 100.16 crore. The lender has invited bids for sale on 100 per cent cash basis by September 20. Other banks including State Bank of India have also followed this route to prune NPAs and boost recoveries.

The lenders typically get 15 per cent upfront cash on the sale value of the assets while for the remaining 85 per cent, the ARCs issue security receipts to banks. While the RBI rules require ARCs to pay a minimum of 15 per cent upfront, most lenders are keen to get 100 per cent cash payment against sale of assets. To promote the ARC mode of resolution of stressed assets, the government has allowed foreign direct investors to pick up 100 per cent stake in ARCs.

Resolution through ARCs has been growing over the recent years. The book value of loan assets taken over by the ARCs from banks and financial institutions have risen to Rs 3.79 lakh crore in fiscal year 2018-19, up from Rs 3.23 lakh crore in 2017-18 and Rs 2.56 lakh crore in 2016-17. Banks typically offload their bad debts to around 24 ARCs currently operating in India to clean up their balance sheet.

In order to promote resolution through sale of NPAs, an RBI-constituted expert committee, in its report earlier this month, has recommended that foreign portfolio investors (FPIs) be allowed to directly buy distressed assets from banks. “FPI Investors may also be allowed to directly purchase distressed loans from banks within permissible annual prudential limits defined by RBI in consultation with the Government of India,” according to report of the Task Force on the Development of Secondary Market for Corporate Loans. The central bank has recently allowed banks to sell certain category of bad assets to eligible External Commercial Borrowing lenders.

The Indian Express reported

DNA: Patanjali Group to infuse Rs 3.4K cr in Ruchi Soya

9 September 2019: Patanjali Ayurved, which got the NCLT approval last week to acquire Ruchi Soya in an insolvency process, plans to infuse over Rs 3,438 crore as equity and debt to settle dues of creditors of the company.

Patanjali group will pump in Rs 204.75 crore as equity and Rs 3,233.36 crore as debt, according to Ruchi Soya, Ruchi Soya informed the stock exchanges.

The amount will be infused in a special purpose vehicle ‘Patanjali Consortium Adhigrahan Pvt Ltd’, which will be later amalgamated with Ruchi Soya.

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The edible oils firm said the National Company Law Tribunal (NCLT), Mumbai, in its order dated September 6, approved Patanjali’s Rs 4,350 crore resolution plan with certain modifications that were accepted by the bidder.

Patanjali would infuse another Rs 900 crore through subscription of non-convertible debentures and preference shares in the SPV. The committee of creditors of Ruchi Soya in April this year had approved the Patanjali group’s Rs 4,350 crore resolution plan to take over the company. The lenders will have to take a haircut of around 60%.

Out of the Rs 4,350 crore offered by Patanjali group, Rs 4,235 crore would be utilised to pay creditors while Rs 115 crore would be used for capital expenditure and working capital requirements of Ruchi Soya.

About Rs 4,053.19 crore will be paid to secured financial creditors, Rs 40 crore to unsecured financial creditors, Rs 90 crore to operational creditors, Rs 25 crore to clear statutory dues, Rs 14.92 crore to workmen/employees and Rs 11.89 crore to provide counter bank guarantee. A monitoring committee will be constituted to oversee the process.

AYURVEDA TO OILS 

  • Patanjali group will infuse Rs 204.75 crore as equity and Rs 3,233.36 crore as debt.
  • It woud infuse another Rs 900 crore through subscription of non-convertible debentures and preference shares 

The DNA India reported

FE: Sterling Biotech: NCLAT sets conditions for promoters to take back control

7 September 2019: The National Company Law Appellate Tribunal (NCLAT) on Friday set two preconditions — clean money certified by the Enforcement Directorate (ED) and timely payment to the creditors — for the absconding promoters of Sterling Biotech to wrest back control of the insolvent firm. Failing which, the firm with a debt of over `9,000 crore will be sent back to liquidation.

NCLAT’s latest direction comes days after it termed “uncalled for” the National Company Law Tribunal (NCLT), Mumbai bench’s order of liquidation of Sterling Biotech on the ground that an application to take the company out of the insolvency process filed under section 12A of the Insolvency and Bankruptcy Code (IBC) has got nothing to do with a promoter’s eligibility under section 29A provided the proposal has the backing of over 90% affirmative votes of the lenders.

“The order (on August 28) is a conditional one. We may also revert to liquidation if the amount is not paid. Liquidation order may be restored. You (promoters) will have to get the verification done as to whether the money is genuine or not. Only ED will say that, not bank. Our order is very clear that it should not be the proceeds of crime,” the three-member NCLAT bench, headed by its chairperson SJ Mukhopadhaya, said.

The bench, hearing an application moved by the liquidator of Sterling Biotech seeking clarification over the order passed by the NCLAT on August 28, said the ED has to be satisfied that the money the promoters deposit is clean money and not from the proceeds of crime.

While setting aside the NCLT’s May 8 order, the NCLAT had on August 28 said even if the corporate debtors’ assets are proceeds of crime, it does not bar the promoters to settle the matter with the creditors if they put in the money out of their own pockets.

“We want clean money to come back to India, the money which will come from personal sources,” the bench said.

The NCLAT also issued notice to Andhra Bank, lead banker to Sterling Biotech under whose plea corporate insolvency petition was admitted, asking it to state as to why its August 28 judgment be not clarified in view of the fact the promoters or shareholders or directors “have been allowed to pay in their individual capacity from their respective accounts and not from the proceeds of crime”.

“A clarification is required to be given as to what would be the steps to be taken, if section 12A application is not given effect within the time-frame, say 30 days from the date of order and whether to revert to the stage of liquidation for failure of compliance,” the bench said.

The bench directed that the liquidator be appointed by the adjudicating authority to function until further orders. It has asked ED’s counsel to remain present in the court on the next hearing, scheduled on September 23.

The Financial Express reported

BQ: Anil Ambani’s Shipyard Risks Insolvency as Banks Spurn Debt Plan

3 September 2019: The shipyard controlled by embattled Indian tycoon Anil Ambani is facing the prospect of bankruptcy after failing to get creditors’ approval for restructuring 70 billion rupees ($970 million) of debt, people familiar with the matter said.

India’s bankruptcy tribunal will consider putting Reliance Naval & Engineering Ltd. in bankruptcy on Wednesday as no new repayment plan was submitted after lenders led by IDBI Bank Ltd. rejected an earlier offer in July, the people said, asking not to be named as the information is not public. The court can also defer the decision on bankruptcy.

Any court ruling favoring the banks would deal another blow to the tycoon’s stressed empire after his wireless carrier slipped into insolvency earlier this year. The revival of the shipyard is crucial for the tycoon, who’s betting on potential cash flows from government defense contracts as Prime Minister Narendra Modi plans billions of dollars in spending on national security.

While IDBI had sought to move Reliance Naval into insolvency in September 2018, a decision was delayed after industry bodies representing power-generating companies, shipyards and sugar mills successfully challenged the RBI directive that required delinquent borrowers to be pushed into bankruptcy. However, the risk of bankruptcy reemerged for the submarine maker after it failed to come up with a repayment plan even under RBI’s relaxed norms.

Representatives for Reliance Naval and IDBI Bank didn’t respond to emails and phone calls seeking comments.

The warship maker’s loan-recast plan that was rejected in July proposed banks converting part of the debt into equity after the RBI eased rules to provide lenders more discretion in dealing with soured debt, the people said. The plan didn’t involve any upfront payments and proposed a transfer of banks’ non-fund exposures such as guarantees and letter of credits from Reliance Naval to another Ambani company Reliance Infrastructure Ltd., the people said.

Meanwhile, Anil Ambani’s wider conglomerate is planning to dispose of assets spanning roads to radio stations, aiming to raise about 217 billion rupees ($3 billion) to help pare debt that has ballooned to about 939 billion rupees at four of its biggest units — excluding the telecom business Reliance Communications Ltd.

Bloomberg Quint reported

FE: Hope for Jet Airways: Synergy group looks to invest up to Rs 3,000 cr in airline

30 August 2019: Synergy Group, a South American entity, which holds a significant stake in Columbian Avianca Airlines, is willing to invest up to Rs 3,000 crore in the grounded Jet Airways. The investment is conditional on the lenders of the airline taking a large debt haircut, Antonio Guizzetti, one of the advisors to Synergy Aerospace said.

German Efromovich, the owner of the Synergy Group, will meet the State Bank of India within the next two weeks to present a business plan. “Jet Airways is a good company, but it is grounded, which is very difficult to rehabilitate. Our desire is to negotiate with the banks for conversion of debt to equity,” Guizzetti said.

Financial creditors have claims worth over Rs 8,200 crore due with Jet Airways. Efromovich had in 2004 bought a bankrupt Avianca. The airline has since grown to become Latin America’s second largest. The Synergy Group is looking for an Indian co-investor, and it has engaged legal experts to see whether the entity can own more than 49% stake in Jet Airways.

“How much stake Synergy Group can pick up is under discussion with our lawyer, because the 49% limitation in foreign ownership is applicable for an airline operator. But the investment into Jet Airways will be done by Synergy Aerospace as a foreign entity,” Guizzetti said.

As per the Indian foreign direct investment (FDI) regulations, a foreign airline can directly invest up to 49% in a scheduled Indian carrier. “However, the rule applies only to those entities which directly own an airline. If the foreign entity is an investment arm, private equity, fund, bank, or an industry conglomerate, FDI can go up to 74%, which is the maximum permissible investment that can be held by a foreign investor provided it is explicitly not an airline. If Synergy group invests in Jet Airways, they would have to disclose where the money they invest is coming from,” Mark D Martin, CEO, Martin Consulting, said

Lenders are currently evaluating the group’s credentials. “These are very early days. It is hard to tell whether lenders will entertain Synergy Group’s proposal. The owner had some solvency issues in the recent past. Lenders will meet Efromovich in person and see how to take things forward,” a person involved in the proceedings said.

Earlier this year, Efromovich was reportedly removed from the board of Avianca Holdings for a loan breach. The Bolivia-born entrepreneur offered up to his 51.5% stake in Avianca as collateral on a $456-million loan from United Continental Holdings, the parent company of American carrier United Airlines. He eventually defaulted on the loan, putting Avianca’s future at risk.

Efromovich has since put in an offer for Italian carrier Alitalia, which was rejected. He has been looking to invest in India, either in Air India or Jet Airways. If the deal goes through, the Synergy Group to revive Jet as an international low-cost carrier. The group plans to inject significant working capital as well as new capital investment to expand Jet’s fleet, Guizzetti said. Efromovich declined to comment in an email response to FE.

Jet Airways has been grounded since April 17 after lenders refused to extend emergency funding to the airline to continue with its operations. The slots assigned to Jet have since been reallocated to other airlines. On June 20, the National Company Law Tribunal admitted the airline for insolvency proceedings. According to the company’s website, creditors have filed claims worth over Rs 30,000 crore, of which claims of over Rs 12,000 crore have been admitted so far.

The Financial Express reported

ET: Lenders likely to put bad loans worth Rs 8,000 crore on the block

29 August 2019: About Rs 8,000-crore worth of stressed loans, mainly from the power and manufacturing industries, are likely to be put up for sale by lenders seeking quicker recoveries — both within and outside the dedicated bankruptcy-resolution framework.

Lenders including United Bank of India, Bank of Baroda, Axis Bank, Indian Overseas Bank, Bank of Maharashtra, and Karur Vysya Bank are likely to offer loans for sale to distressed funds or asset reconstruction companies (ARCs) in the next few days, three people familiar with the matter said. A large housing finance company will also put up some of its sour loans to builders for sale.

United Bank of India has, perhaps, put up the largest chunk on the block. A total of 42 accounts with an outstanding of Rs 2,182.2 crore have been offered. The bank has invited bids from asset reconstruction companies, banks, and financial institutions. Other lenders may be looking at anything between Rs 500 crore and Rs 1,500 crore each.

“Banks can put assets for sale but the price they want should match what is offered by funds and ARCs. Banks are looking for cash settlement, but the price they expect is still higher than what funds are offering, which means deals are few and far between,” said P Rudran, former CEO at Arcil.

Other loans on sale may include those to Jindal India Thermal Power and KSK Mahanandi. Indian Overseas Bank may offer Vadraj Cement for sale, people associated with the process told ET.

Axis Bank declined to comment on the matter. Other banks did not reply to ET’s mailed queries.

“Lenders may have to take at least 50% haircut as investors are unlikely to settle for anything less,” said an executive involved in the processes. Tough negotiations are expected, with lenders seeking to get rid of sticky assets.

United Bank of India and Bank of Baroda have either called for tenders, or will soon do so.

Earlier, too, some state-owned banks, including the State Bank of India, tried to sell bad loans. The banks received very few bids, which were not remunerative.

“Some private sector lenders are in one-on-talks with distressed funds as they are negotiating private deals to sell off bad loans,” said another person, adding that retail loans are not being offered.

Bankruptcy cases are taking rather long to get resolved. About 34% of the 1,292 cases in the bankruptcy courts up to June 2019 are delayed beyond 270 days, up from 26% a year ago, and 31% in the quarter ended March, ET reported on August 16.

The Economic Times reported

ET: RBI’s ‘undeclared’ NBFC review akin to banks’

28 August 2019: Reserve Bank of India (RBI) Governor Shaktikanta Das may have ruled out an Asset Quality Review for NBFCs, but an ongoing central bank inspection of the books of non-bank companies shows that the exercise is as stringent as the official scrutiny that had earlier pushed high-street lenders to declare higher bad loans.

The RBI engagement is so intense that even some of auditor-accepted practices of bad loans are given a go by and inspectors are insisting on classifying even good loans as bad, said sources. RBI has increased the scrutiny on NBFCs exposures, quality of assets and asset-liability mismatches (ALM). NBFCs have faced tough liquidity conditions due to an increase in funding costs and difficulties in market access.

The Asset Quality Review of the RBI had opened a can of worms for banks. It ended the practice of banks and businesses sugar-coating bad practices as social necessity. Since 2014-15, NBFCs have expanded credit rapidly when banks were battling bad loans. They benefitted from easy liquidity. “Today audit is more detailed than in the past,” said Umesh Revankar, CEO, Shriram Transport Finance. “Earlier, they were looking at credit quality… now they are looking more indepth. RBI is asking for top 50-100 assets that have gone bad. It gets into the details, including deviations.”

Asset classification has been brought on a par with banks, and asset quality has deteriorated over the past financial year. Gross NPAs of the NBFC sector as a percentage of total advances have increased from 5.8 per cent in 2017-18 to 6.6 per cent in 2018-19.

“RBI never looked at the ALM root cause until the DHFL crisis, and it started asking for the ALM report frequently,” said the CEO of an NBFC.

The Economic Times reported