Banks Put NPAs on Sale

There is a delay in passing the resolution, which has resulted in the banks being forced to put non-performing assets (NPAs) worth Rs. 40,000 up for sale which includes sectors such as Power, Roadways and Telecom in the first half of the fiscal year to September.

• The resolution process under the Insolvency and Bankruptcy Code (IBC) was delayed unduly since various stake holders have challenged the process in the court.
• Data from IBBI (Insolvency and Bankruptcy Board of India) showed that around 34% of 1292 cases in the Bankruptcy court till June have been delayed beyond the schedule of 270 days which was 26% a year ago and 31% in the March quarter.
• This has created a fear that this could make the law ineffective as had happened in the previous endeavors.
• Also Lenders are looking at the Asset Reconstruction Companies (ARCs) to acquire Non-performing assets.
• In toto, 11 private and state run banks have put NPAs for sale as shown in the above chart.
• Also, it is said that since the Banks are more worried about their profitability and holding on to a solution through NCLT process for the entire NPAs is not welcomed.
• Also, it is noteworthy that those who are buying the NPAs also count on NCLT for liquidation value.

Issues faced:

1. The IBC operates through NCLT benches and National Company Law Appalette Tribunal (NCLAT) litigants have also approached the Supreme Court for redressal of the issues.
2. The code was aimed at speeding up the bankruptcy process so that banks could fix their finances, restore credit growth and drive investment.
3. Banks as a last resort are also trying to put assets for sale where they do not get the liquidation value.
4. The delay caused is said to be due to unnecessary applications being filed by promoters and related parties.
5. India’s 30 ARCs bought assets worth Rs. 24,000 crore from banks in the last financial year and ARCs have to pay 15% of the purchase consideration as per current regulatory norms while the remaining can be picked up by qualified institutional buyers, many of them being overseas entities.
6. The total NPAs in the banking system are pegged to be Rs. 9.3 lakh crore of which around Rs. 2 lakh crore can be sold to ARCs.

Conclusion:

• A time bound recovery is essential valuation gaps are leading to delays in closure through ARCs.
• Whenever there is a gap between the reserve price and the bid price, closure is not happening.
• Also in many cases, the banks are unable to provide a detailed information on the underlying assets is also a concern.