Offer window for restructuring large firms' stressed loans: Assocham to RBI

Calls for one-time relief that will allow restructuring of viable companies and not expose them to the threat of insolvency resolution and resultant liquidation

Within a month of RBI offering a special dispensation to small businesses to defer treating their loans as stressed, industry lobby Assocham Thursday demanded a similar treatment for large businesses as well.  

Its president Balkrishan Goenka has written to the RBI governor, pitching for stressed companies with aggregate exposure of up to Rs 1,000 crore or more to be treated similarly and not categorised as non-performing assets.

It can be recalled that the RBI's move to create the special dispensation for restructuring the advances to micro, small and medium enterprises had come 10 months after the central bank had officially declared an end to all restructuring in the now famous February 12, 2018 circular. 

The move, which was driven by a board decision following a major tiff between the government and RBI, was criticised as being regressive by some quarters.

"To support mid and large companies and preserving these accounts from within the banking system, it is requested that an adequate policy framework is put in place to address temporary mismatches," Goenka said in the letter.

He argued that the current economic situation and global macro factors are impacting mid and large manufacturing industries, as well as infrastructure and other companies that are a part of the core sector.

"This one-time relief to banks will allow one-time restructuring of such viable companies and will not force them to resort to extreme measures under NCLT and resultant liquidation," he said.

The ongoing liquidity troubles faced by non-bank lenders and eight of the state-run banks being under the restrictive prompt corrective action framework has accentuated the situation, he said.

Claiming that Rs 24 trillion in capital is "locked", he said banks are lending only to the well-rated borrowers, resulting in many projects being kept on hold as alternative financing is not available.

The insolvency and bankruptcy code is also not helpful as the bulk of these cases are yet to be resolved through the provision, he said. 

Referring to the RBI discontinuing the joint lenders' forum framework and opting for the February 12 circular instead, it admitted that a few habitual defaulters may have misused the earlier system but genuinely stressed borrowers are likely to face a rating downgrade under the current system.

"To support such companies and preserving these accounts within the banking system, it is requested that an adequate policy framework is put in place to address the temporary mismatch and stressed companies with aggregate exposure of Rs 1,000 crore or more are also given protection as is available to MSMEs and they are not categorised as bad loans."

It will be a one-time relief which will allow restructuring of viable companies and not expose them to the threat of insolvency resolution and resultant liquidation. 

The industry lobby said only those companies which have not been admitted to debt restructuring earlier through the CDR or SDR route be made eligible and pitched for a revival of the JLF framework.