Stressed steel sector loans easier to resolve: bankers

Stressed companies in the steel sector stand a better chance of getting resolved under the Insolvency and Bankruptcy Code (IBC) in the backdrop of revival in steel demand and pick up in prices, say bankers.

This observation comes in the context of Reserve Bank of India’s internal advisory committee recommending for immediate reference under the IBC 12 accounts totalling about 25 per cent of the current gross non-performing assets (GNPAs) of the banking system. GNPAs of the banking system are estimated at about ₹8 lakh crore.

A public sector banker clued in to the development observed that the insolvency professional, who is appointed by the National Company Law Tribunal (NCLT) under the IBC for drawing up a resolution plan and managing the affairs of a stressed steel company, may be able to find buyers for the asset under his charge.

“Stressed steel companies are relatively low-hanging fruit for resolution under IBC. I am sure healthy steel companies would like to expand their capacities via the acquisition route. If no private sector player is interested in acquiring these productive assets, State-owned companies may throw their hat in the ring,” he said.

Liquidation of assets is not an option as huge investments have gone into the creation of these assets, said another banker.

In the case of stressed holding companies in the infrastructure sector, the resolution process could take longer as they typically float special purpose vehicles for individual projects and the insolvency professional may need to simplify complex holding structures. Further, the government will have a big role to play in the case of distressed core sector projects, which have stalled for want of inputs such as gas and coal and have seen huge cost and time overruns, he added.

Credit rating agency ICRA said with identification of 12 borrowers against whom the RBI will direct banks to initiate proceedings under IBC an important step towards resolution of stressed assets has been taken.

The RBI is expected to direct the banks shortly, upon which the latter will have to file cases against these borrowers with the NCLT which will decide on the admission on these cases under IBC within a period of 14 days.

According to Karthik Srinivasan, Group Head – Financial Sector Ratings, ICRA, a key imponderable is the extent to which the decisions could be challenged in courts, thus delaying the process. However, while there is a precedent of a borrower challenging in the High Court the invocation of IBC by its lenders and its reference to NCLT, the same was not stayed and the proceedings under IBC continued.