JLF to meet next week to review stressed cases

With the first quarter of financial year 2016-17 (FY17) coming to an end, lenders meet next week to review big-ticket stressed cases, especially in the steel and construction sectors, and could decide to undertake a restructuring exercise.

Joint Lenders Forums (JLFs) had met towards the end of FY16 in March. At the time, many promoters had given an assurance to infuse equity, reduce debt and off-load some assets to raise funds.

Subsequently, banks had commissioned techno-economic viability studies as well as forensic audits for stressed cases, senior executives of the State Bank of India said.

While SBI and ICICI Bank lead most JLFs for big-ticket accounts, many medium-sized accounts could have small or medium-sized banks as leaders of the consortium of lenders, a public sector executive said.

There was deterioration in the corporate loan portfolio, resulting in higher slippages to non-performing assets (NPAs) for banks, in the second-half of FY16. This had forced banks to increase provisions for NPAs. The slippages were primarily from vulnerable sectors such as iron and steel, infrastructure, and construction.

Banks intend to utilise the Scheme for Sustainable Structuring of Stressed Assets (S4A), which was introduced by the Reserve Bank of India in June to tackle mounting bad loans. The scheme will cover those projects that have started commercial operations and have outstanding loan of Rs 500 crore and above.
 

The scheme envisages determination of the sustainable debt level for a stressed borrower. The bifurcation of outstanding debts into sustainable debt and equity/quasi-equity instruments are expected to provide an upside to lenders, when the borrower turns around.

According to the resolution plan, the debt will be divided into two parts: Part A will include debt that can be serviced from the existing operation, while the rest will be classified as Part B.