'Uncertainty over Reliance Industries deal drove FRL lenders to IBC'

Protracted litigation, safeguarding bankers' interest also led to the action

While lenders were preparing for taking Future Retail (FRL) to the bankruptcy court, the protracted litigation and uncertainty on a deal with Reliance Industries nudged them into immediate action under the Insolvency and Bankruptcy Code (IBC).

The next steps include approaching the Debt Recovery Tribunal (DRT) and examining prospects to invoke guarantees. A senior banker with a public sector bank said going to National Company Law Tribunal (NCLT) was the last option. The legal process — Amazon-Future issues — continues to drag.

There was some expectation of Reliance taking initiative for a way out but there was hardly any movement forward. Banks have charge on assets and this was a step (NCLT application) to protect their rights and an effort at a resolution, bankers said.

A middle-level bank executive said a resolution, which is approved by a judicial forum like NCLT, is safe for bankers, especially those in public sector banks. It protects them from litigation in the future that they have to fight on their own after retirement.

After a part of the IBC process, Bank of India (BoI), which moved NCLT on behalf of lenders, suggested that the insolvency tribunal appoint Vijay Kumar V Iyer as interim professional of the company. Besides admission at the tribunal, lenders’ work will involve steps like preparing a resolution plan, getting it vetted from rating agencies and inviting interest from resolution applicants, bankers added.

The total exposure of banks is estimated around Rs 17,000 crore. Besides BoI, others in the lenders’ consortium include Axis Bank, Andhra Bank, State Bank of India (SBI), Corporation Bank, IDBI Bank, Union Bank of India, Bank of Baroda, Central Bank of India and Punjab National Bank.

As for making provisions for FRL, they have been setting aside money as provision since Q1 of FY22 as this is being restructured under Covid regulatory package.

Lenders have been treating it as a non-performing asset (NPA) since Q4 of FY22. Provisions are more than regulatory norms and would continue over a period. A senior SBI executive said efforts will be made for a resolution and the prospects of recovery are low. The company, being a retail venture, has hardly any hard assets.

Future Group companies will conduct meetings of their respective shareholders and creditors from April 20-23 to seek their nod for the deal.