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SBI does a U-turn on stressed assets sale, seeks deals with ARCs

Livemint |
Sutanu Sinha, Partner
Business Restructuring Services

18 September 2018

Apart from Essar Steel, SBI has also put up its exposure in Jai Balaji Industries, Rohit Ferro Tech, Impex Ferro Tech and Ballarpur Industries for sale to ARCs

Mumbai: State Bank of India has made a complete U-turn on stressed assets undergoing insolvency proceedings. Instead of initiating bankruptcy proceedings against the defaulting companies, the state-owned lender is now looking to sell them to asset reconstruction companies (ARCs), two senior bank officials said, requesting anonymity.

On 17 January, Mint had reported that SBI was against selling the bad assets, which were before the National Company Law Tribunal (NCLT), to ARCs. Instead, it preferred to follow the cases in the bankruptcy court to fetch better valuations. The bank had even expressed displeasure over other banks selling their assets to ARCs. Consequently, the Indian Banks Association had issued a directive to all lenders asking them to avoid such sales as it could disrupt the resolution process.

The recent change in stance comes following delays in resolving cases at the NCLT and the potential increase in provisions that SBI will have to make against such accounts. Separately, once the bankruptcy application is admitted at NCLT, interest accruals has to be foregone.

A case in point is Essar Steel. SBI had recently said that it had withdrawn the process of sale for the company’s debt to an asset reconstruction company (ARC) following an order by the National Company Law Appellate Tribunal (NCLAT). According to an SBI official, the lender had decided to offload its over ₹ 12,000-crore exposure to the distressed steelmaker since the NCLT resolution process had stagnated. “Cases such as Essar Steel has been awaiting judgment for the last 15 months. The bank is losing interest on the asset ever since it was referred to NCLT. We now feel that these cases should be instead sold to an ARC.”

Besides Essar Steel, SBI has also put up its exposure in Jai Balaji Industries Ltd (₹ 859.33 crore), Rohit Ferro Tech Ltd (₹ 1320.37 crore), Impex Ferro Tech Ltd (₹ 200.67 crore) and Ballarpur Industries Ltd (₹47 crore), which are either admitted to the bankruptcy court or are still being heard, for sale to ARCs, according to the notice on its website.

In most of these companies, SBI wants to sell the loans on a full-cash basis, which would lead to faster recovery compared to the NCLT process, which hinges upon competent resolution plans.

That apart, other large lenders such as Bank of India, HDFC Bank Ltd and Bank of Baroda have also started looking for ARCs to buy their exposures in Essar Steel.

For instance, BoB is in the process of selling its domestic loan exposure in Essar Steel worth ₹ 1,200 crore to Hong Kong-based loan and bond trading firm SC Lowy.

Indian Overseas Bank had earlier sold its exposure of ₹ 1,600 crore in Essar Steel to Edelweiss Asset Reconstruction Co. As on 10 September, Edelweiss ARC had ₹ 14,666 crore admitted claims of ₹ 49,394 crore of all Essar Steel’s financial creditors put together.

Sutanu Sinha, a senior resolution professional, said that banks can book interest on an account only up to the date of commencement of insolvency proceedings. “The interest rate is calculated as per the loan agreement between the two parties and as soon as the account is admitted by the tribunal, the claims get frozen and, therefore, no further interest can be booked.”