Weekly wrap: Bankers burn the midnight oil as deadlines for bankruptcy cases near

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India’s bankers are burning the midnight oil as bad loan clean-up exercises for the last quarter financial results of 2017-18 keep them working till late hours along with busy weekends.

Bankers continue to go back and forth on approval decisions as courts delay the resolution of 12 large accounts undergoing insolvency proceedings, which are now close to missing deadlines.

On the other hand, senior public sector bank executives say that the non-performing assets (NPAs) will shoot up in the balance sheets of the fourth quarter (Q4) after the Reserve Bank of India’s (RBI) new guidelines released in February.

An RBI research paper authored by some of its officials said that asset quality issues in banks, with the rise in gross bad loans, have impaired transmission of monetary policy into bank interest rates. It said that this has led to decline in the banks’ net interest margins (NIMs), which is one of the key indicators of the bank’s financial strength.

Moreover, banks are also losing business to the non-banking finance companies (NBFCs), grabbed 40 percent share of all the new corporate loans in fiscal year 2018.

The outstanding loans in the NBFC sector grew 27 percent over last year, the sharpest jump among all the sectors in industry and services.

Rating agency Moody’s Investors Service also said that the central bank’s push banks to recognise problem assets more accurately will reduce the profitability of banks in the near term. This will, however, produce benefits over the longer term.

Fate of insolvency accounts

For now, the fate of a few of the 12 stressed accounts is looming with uncertainty. But experts feel the courts could help lenders extract the maximum value from these assets.

During the week, after multiple meetings of lenders and promoters and several hearings at the High Court and National Company Law Tribunal (NCLT) Essar Steel’s lenders asked both its bidders ArcelorMittal Netherlands NV and Numetal Mauritius to clear all their dues to be considered eligible resolution applicants for Essar.

This also comes after ArcelorMittal this week, for the first time revealed that it may consider paying off the dues of Uttam Galva Steels as a ‘goodwill gesture’.

While Binani Cement’s resolution hit a roadblock after rival bidder UltraTech Cement challenged the committee of creditors (CoCs) decision to sell the company to Dalmia Bharat-controlled Rajputana Properties. The Kolkata bench of the insolvency court Wednesday ruled in UltraTech’s favour.

Punjab National Bank (PNB), which is also still recuperating from massive fraud worth Rs 13,000 crore, hopes to recover from its impact over the next six months.

Over the next few weeks, it awaits to be seen how PNB and other public sector banks fare as they are set to announce their financial results and at the same time hope to see the final resolution plans of the NPAs under the historic Insolvency and Bankruptcy Code (IBC).moneycontrol