Banks in India will recover only 48 per cent of their debts from the top accounts that have turned into non-performing assets (NPAs), according to a research report by Edelweiss Securities.
The haircut for major banks stands at 52 per cent, if the dues of Jaypee Infrastructure, Lanco Infrastructure and Era Infrastructure are kept out of the calculation. This is down from the initial expectations of a 60 per cent haircut for the stressed accounts under insolvency proceedings.
There has been a greater than expected recovery from the insolvency and debt resolution of Bhushan Steel and Bhushan Power and Steel, but that has been partially offset by debt resolution of Amtek Automobiles, Electrosteel Steels and Alok Industries.
In the case of ABG Shipyard, too, says Edelweiss, the recovery of dues has been more than expected. However, at the time of going to press, ABG Shipyard had announced its unanimous rejection of the revised resolution plan submitted by the sole bidder, Liberty House.
Good and bad resolutions
In the case of Bhushan Steel, Tata Steel emerged as the winning bidder on March 23 and the company offered to pay Bhushan Steel’s lenders Rs 348 billion and operational creditors Rs 12 billion. Banks will take a haircut of 37.1 per cent on the corporate debtor’s outstanding debt of Rs 560 billion, according to the report. Additionally, banks will get a 12 per cent stake in the company once the ownership transition is completed.
Vedanta Resources has emerged as the highest bidder for stressed company Electrosteel Steels, which has an outstanding debt of Rs 133.45 billion. Vedanta has offered to pay Rs 50 billion for the company, and the national Company Law Tribunal approved the resolution plan on Tuesday. Banks will take a 66 per cent haircut, with State Bank of India (SBI) bearing highest proportion.
Vedanta is awaiting the Competition Commission of India’s approval, which is likely in the next two to three weeks. “While in a few big accounts (particularly steel segment) resolution has been at higher-than-estimated value, we remain sceptical on resolution and haircuts in other sectors and smaller cases,” according to the report’s authors Kunal Shah, Prakhar Agarwal and Abhishek Agrawal.
Among the top NPA accounts on the Reserve Bank of India’s second list of large stressed accounts, SBI has the largest exposure to six accounts: Ruchi Soya Industries (23.5 per cent), Orchid Pharma (21.9 per cent), Coastal Projects (29.1 per cent), IVRCL (7.9 per cent) Castex Technologies (20.5 per cent) and Unity Infra (11.9 per cent).
ICICI Bank is the only private player that has an exposure to all of the accounts mentioned above: Ruchi Soya Industries (6.6 per cent), Orchid Pharma (0.6 per cent), Coastal Projects (14.1 per cent), IVRCL (11.7 per cent) Castex Technologies (3.6 per cent) and Unity Infra (16.9 per cent).
On its second list, the RBI had referred to the NCLT 28 to 30 companies that did not repay their debt. Around 17 accounts, which owe banks Rs 301.38 billion, have still not been admitted under the Insolvency and Bankruptcy Code (IBC) for debt resolution. These include Jayaswal Neco, Jai Prakash Associates, Videocon Industries, Anrak Aluminium, Uttam Galva Steel and Aban Offshore.