We are guesstimating that the Roseneft-Essar deal would probably mean a direct benefit of anywhere between $750 million to a $1 billion coming in for ICICI Bank. These are the numbers doing these rounds. Are we are on the button or are we far away from the mark?
I am not supposed to talk on specific numbers about specific clients but you have numbers in the similar ballpark. I would just like to mention that actually with this deal what happens for us is that part of the loans get repaid, part of the loans become non-Essar exposures because they get transferred to another group. So for us, almost 50% of our Essar Group exposure either becomes a non-Essar Group exposure or gets repaid.
The street also prima facie is working with one number right now coming in via the operating company structure from Essar to you. Is there any other thing that can happen? For example, for Essar Steel, people are saying that the only benefit that banks can hope for is some equity infusion by promoters and that is about it. But are we missing something else out here that you would be privy of? May not be numbers but any other angle that you would want to share regarding this deal?
No I think there are a lot of positive implications of this deal. Just talking about first, the impact on lenders itself. 1) impact is that the lenders of the holding company get repaid or some part of their debt moves to a non-Essar Group debt. 2) Even for the Indian lenders, a large part of their debt will become non-Essar exposure. You can broadly consider that may be loans of almost Rs 40,000 crore for the Indian banking sector will become either non-Essar exposure or will get resolved. That also means the ability of the group to focus on the rest of the companies that they are left with, so that one can work towards resolution on those as well.
Equity infusion, etc, would be required in those companies but at least it means more focus and greater possibility of doing such things. Overall, we must recognise that some of the deals that we have been working on – for example, the sale of Jaiprakash Cement deal or taking a company like Gammon and breaking that into three parts and selling each of the parts to a different owner, — all this means a huge focus on resolution and that is a very positive impact for the Indian banking industry.
From large to mid to small, we are seeing a bunch of people doing this. This morning we had a small sugar company selling off a price sugar plant in order to meet its debt repayment problems. Are you seeing this increasing in your conversation with corporate India wherein large indebted companies are saying that hey! we want to deleverage and repay the bank so that we can continue business?
It is also quite a bit driven by the large banks themselves. We are working with the promoters to find some buyers. We are working with the regulators to get the policies in place and credit must be given to the Indian corporate sector as they are also openly looking at these suggestions and working towards deleveraging.
We should segregate what is recognition and what is resolution of stress and we should really focus towards resolution. The RBI governor said the same thing in the credit policy and in a growth economy like ours where a lot of these assets have been put on ground. These assets are good quality. It is in the interest of everybody that we work towards resolutions so that we make sure that these assets actually remain productive.
We have seen corporate groups either selling the projects that were in difficulty but are now actually selling projects which are their prime assets so that it not only just contributes to leveraging but also contributes to their ability to handle the rest of the other projects that are left with them.
I do not know if you can strictly answer this the way I am asking you to but do you think the market is underestimating the strength of this recovery in banks?
What I can specifically tell you is that a lot of resolution has taken place and a lot more is work in progress. We have seen some very successful instances in this regard to get a whole large cement business to be sold to another buyer. That was a huge resolution for the Indian banking sector. I am talking about the Jai Prakash deal because it is already out in the open, one can discuss it.
Similarly, I spoke about some smaller companie. For example, we took the exposure in Gammon and we broke that into three parts and we have resolved it and are resolving it part by part. And now you have this big deal being talked about. So actually what you are seeing today is what you have never seen in the Indian corporate and banking history in terms of resolutions.
I am sure these are exciting but also very tough times for a bank and a bank of your size to be able to juggle so many glasses together. Do you reckon that resolutions of this nature, around this size or otherwise, are coming up in the next six months?
Yes. As I said, many resolutions are being discussed. We need to stay focussed and take resolution by resolution and see it through completion. Each one of the deals takes a lot of the entire ecosystem to come together. And even when the deals are announced, for them to finally fructify, a lot of regulatory approvals are needed. But a lot of these resolutions are being worked upon and I am very hopeful that the system will keep working towards that.