RESOLVING BAD LOANS IN 2018

Following is the alarming news about Bad Loans in India from India Ratings Report:

1. Bad Loans amount to Rs. 10.2 lakh crore
2. Around 45% of bad loans which is Rs. 3.80 lakh crore is accounted by 500 corporates
3. Under IBC Act, this 45% is likely to be resolved in the year 2018

Further details of Bad Loans are:

1. The total stressed assets resolved amounted to Rs. 82,000 crore. The average haircut of 43 percent was lower than the estimated percentage of 59 percent.  The difference was due to large sized Iron and Steel and Cement Industry which had lower haircuts.
2. Out of Rs. 3.80 lakh crore debts likely to be resolved, Rs. 1.61 lakh is expected to be sustainable, if resolution goes ahead as per plans and timelines. The resolution would result in Rs. 4.2 crore of stressed assets turning to be good.
3. Infrastructure sectors like Power, Mining and Metals had the highest concentrated stressed debt, pending resolution which is followed by Real Estate, Telecom and Petro Chemicals. In order to avoid being pushed to the stressed assets category, Real Estate category might be having requirement of high refinancing.
4. It is estimated further that Rs.420,000 crore stressed debt could become sustainable due to resolution process by 2019.

Keeping in view the large size haircut faced by the creditors in the past, the Parliamentary Committee has recommended for fixing a reasonable base price for any bidding so that large haircuts can be avoided in the course of IBC process in National Law Tribunal.

In response to RBI’s view that it does not possess enough powers to regulate the state owned banks, the Parliamentary Committee suggested that the Government should constitute a high powered committee to evaluate the role, power and authority of RBI in its entirety.

Further, it is suggested that the high powered committee should appraise the economic impact of various NPA resolution norms/schemes formulated by RBI.    Also the Parliamentary Committee has sought a review of whether RBI has used its powers effectively in case of deviations by Private Banks like ICICI Bank and HDFC Bank.

Note:

A haircut is the difference between the loan amount and the actual value of the asset used as collateral. It reflects the lender’s perception of the risk of fall in the value of assets. But in the context of loan recoveries, it is the difference between the actual dues from a borrower and the amount he settles with the bank.