Tag: resolution

About 96% of Rs 2.45 lakh crore recovered under IBC resolutions came from top 100 accounts, BFSI News, ET BFSI

Banking & Finance

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Amid the rising furore over huge haircuts taken by lenders in high-value resolutions under the Insolvency and Bankruptcy Code, the government has said that financial creditors, including banks, realised Rs 2.45 lakh crore from approved resolution plans for 394 corporate insolvency resolution cases under the Insolvency and Bankruptcy Code as on June 30.

Of which Rs 2.37 lakh crore came through approved resolution plans of top 100 CIRPs, which is over 36 per cent of the admitted claims.

About 4,540 cases were admitted for the corporate insolvency resolution process under IBC until June 30, 2021.

About 240 companies liquidated till December 2020 had outstanding claims of Rs 33,086 crore, while their assets were valued at Rs 1,099 crore.
Overall, banks recovered Rs 14.18 lakh crore during the last three fiscals, raising the percentage of recovery to their gross NPA from 13.1 per cent in FY18 to 15.1 per cent in FY19. However, the recovery ratio has dropped 12.8 per cent in FY21 from 15.8 per cent in FY20 in the backdrop of the pandemic.

Recovery rate

The recovery rate of IBC has fallen to 39.3% as of March 2021 from 46% as of March 2020. Of the total outstanding amount of Rs 1.32 lakh crore, only around Rs 25,944 crore was recovered in fiscal 2021, or a rate of 19.7%.

There has been a delay in the liquidation of companies. As of December 2020, around 69% of the liquidations were going on for more than one year, while in the case of 26% of companies the process was on for more than two years.

Economic downturn

With huge capacity unutilised in the economy, companies are not looking to add more capacity, which is impacting the sale process at IBC. Barring sectors like steel where the product cycle has seen a turnaround, assets in other sectors such as textiles are not seeing much interest. While steel assets such as Essar Steel and Bhushan Steel were snapped up, those such as Alok Textiles were sold for much less.

The pandemic has increased operational challenges for the various parties involved in a CIRP, which resulted in limited cases yielding a resolution plan. The suspension of new proceedings under the IBC for the entire FY21 resulted in a sharp slowdown in the resolution process.

The slow judicial process in India allows the resolution processes to drag on, this was the same reason for slow recovery under SICA or RBBD.

Litigations by promoters not wanting to let the company out of their hands is also delaying the IBC process.

Lenders wanting to avoid delay in the recovery process and erosion of value are striking settlement deals with promoters, which defeats the purpose of the legislation.

Fiscal 2022 hopes

Financial creditors could realise about Rs 55,000 crore to Rs 60,000 crore in FY2022 through successful resolution plans from the IBC, estimates rating agency Icra. The higher realisation by the financial creditors would depend on the successful resolution of 8-9 big-ticket accounts, with more than 20% of estimated realisation for the year could be from these alone.



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Wadhawan plans to challenge NCLT nod to Piramal’s resolution plan for DHFL

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Kapil Wadhawan, former promoter of Dewan Housing Finance Corporation Ltd (DHFL), plans to challenge the approval by the National Company Law Tribunal to the resolution plan of Piramal Capital and Housing Finance Ltd.

Wadhawan’s counsel JP Sen informed the National Company Law Appellate Tribunal (NCLAT) about this on Friday.

Sen informed the tribunal that an appeal against the NCLT’s order on June 7 approving Piramal’s resolution plan will be filed in a day or two.

“Wadhawan is likely to file a petition challenging the NCLT order by Monday,” said a person familiar with the development.

Petitions filed by DHFL’s Committee of Creditors (CoC), Administrator and PCHFL came up for hearing before the NCLAT on Friday.

The NCLAT had on May 25 stayed an order by the NCLT, which had directed the lenders to consider the offer made by Wadhawan within a period of 10 days. The stay, which was an interim order, was based on a plea by the Committee of Creditors of DHFL challenging the NCLT order.

Appearing for DHFL administrator, the senior counsel said that since Piramal’s resolution plan has already been approved, the direction by the NCLT to the CoC can not survive.

Delay likely

The NCLAT has adjourned the matter for further hearing to August 2. But with Wadhawan planning to file a petition, the full resolution of DHFL could turn to be further delayed.

Wadhawan has also filed a plea in the Supreme Court challenging the NCLAT stay order.

Small depositors of DHFL, including fixed deposit holders and NCD holder 63 Moons Technologies, are also filing separate appeals for full repayment of their claims.

DHFL’s CoC had earlier this week rejected a plan for higher redistribution of funds to small deposit holders.

The NCLT had on June 7 approved the Piramal Group’s ₹37,250 crore resolution plan for DHFL. This includes an upfront cash component of ₹12,500 crore and a deferred component of ₹19,550 crore.

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Lenders to Reliance Home Fin bid in favour of Authum’s resolution plan

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Over 91 per cent of lenders to Reliance Home Finance have voted in favour of the resolution plan of Authum Investment and infrastructure.

Voting for the resolution of the debt-ridden home finance company had started on May 31 and ended on June 19.

“Our company, on June 19, emerged as the successful highest bidder in relation to acquisition of all assets of Reliance Home Finance under the resolution process in terms of Reserve Bank of India (Prudential Framework for Resolution of Stressed Assets) Directions, 2019 dated June 7, 2019,” said Authum in a regulatory filing.

Regulatory approvals

In this connection, the Lead Bank on behalf of lenders of RHFL under the Inter-Creditor Agreement (ICA), has issued a letter of intent in favour of the company, it further said, adding that it is subject to regulatory and statutory approvals.

Authum had submitted a bid of ₹2,911 crore, which includes ₹24 crore as deferred interest to financial creditors.

About ₹1,800 crore of cash available with Reliance Home Finance will be distributed to lenders, along with the proceeds from the resolution plan.

“Authum’s plan offered the highest net present value and scored the highest in terms of ease of implementation. It was comprehensive addressing all the stakeholders, including RHF employees and customers,” said the source.

While the formal voting period has ended, the lenders have agreed to accept votes from a few more lenders who are still waiting for internal approvals.

Networth of Authum

Authum Investment and Infrastructure is a registered NBFC involved in investments in shares and securities and has a networth of over ₹1,500 crore as on December 31, 2021.

Reliance Home Finance, a subsidiary of Anil Ambani-controlled Reliance Capital, had a debt of about ₹11,200 crore.

“We believe that the acquisition of RHFL, a reputed lending franchise to affordable housing and housing segments, makes our company a significant player in diversified financial services,” said Authum.

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PMC Bank’s resolution could become a template for rescuing other weak UCBs

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Depositors of about 50-odd weak urban co-operative banks (UCBs), which are currently under the Reserve Bank of India’s Directions, may now have some hope of getting back their deposits.

This hope arises from the proposed amalgamation of the scam-hit Punjab and Maharashtra Co-operative (PMC) Bank with a small finance bank (SFB) that will be floated by the Centrum Financial Services and BharatPe combine.

Template for weak UCBs

Co-operative sector experts say if the amalgamation fructifies, it could become a template for rescuing other weak UCBs in the country. Since April 1, 2015, 52 UCBs (as on December 11, 2020) have been placed under All Inclusive Directions by the Reserve Bank, as per the RBI’s latest Report on Trend and Progress of Banking in India.

 

Once a UCB is placed under Directions, deposit withdrawal is capped. The bank also cannot grant or renew any loans and advances, make any investment, incur any liability, among others. While stressed UCBs are placed under Directions by the central bank to nurse them back to health, many stay under Directions for years, bringing a lot of misery to depositors.

September 2020 amendment

Jyotindra Mehta, President, The National Federation of Urban Cooperative Banks and Credit Societies , observed that resolution of weak UCBs has brightened after the September 2020 amendment to the Banking Regulation (BR) Act, 1949, as a UCB can be merged with any bank, be it a SFB, universal bank or another UCB. “Earlier, merger was not possible. There was only takeover of the assets and liabilities of weak UCBs by another bank. But now a clear path to resolution via amalgamation is available,” Mehta said

There have been earlier instances of commercial banks taking over specific assets and liabilities of UCBs. In 2009-10, Indian Overseas Bank took over specific assets and liabilities of Pune-based Shree Suvarna Sahakari Bank. In 2011-12, Bank of Baroda took over around 15 branches of Mumbai-based Memon Co-operative Bank.

Also read: PMC Bank receives 1,229 applications for deposit withdrawal

Saraswat Bank, India’s largest UCB, had acquired seven stressed UCBs (Maratha Mandir Co-operative Bank, Mandvi Co-operative Bank, Annasaheb Karale Janata Sahakari Bank, Murgha Rajendra Sahakari Bank, Kolhapur Maratha Co-operative Bank, South Indian Co-operative Bank and Nashik People’s Co-operative Bank) during the 2006-2009 period.

Co-operative banking expert Vinayak Tarale underscored that BR Act, 1949, was amended in the wake of the debacle at PMC Bank.

“PMC Bank’s resolution, if successful, can become a test case. Other small finance banks too may feel encouraged to takeover distressed UCBs and expand their area of operation. The acquiring banks will get a ready-made branch network and customers,” he said.

Tarale emphasised that on an average, priority sector advances (loans to micro and small enterprises, housing, agriculture, etc. account for about 50 per cent of UCBs overall loan portfolio and this could engage SFBs’ attention.

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Report, BFSI News, ET BFSI

Banking & Finance

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Financial creditors may realise Rs 55,000-60,000 crore in fiscal 2021-22 through successful resolution plans from the Insolvency and Bankruptcy Code (IBC), credit rating agency Icra has said.

The realisation for financial creditors from the resolution of Corporate Insolvency Resolution Process (CIRP) under the IBC declined significantly in FY2021 with a total resolution amount of around Rs 26,000 crore, almost a quarter of the realisations in FY2020, the agency said.

“As per our estimates, the financial creditors could realise about Rs 55,000-60,000 crore in FY2022 through successful resolution plans from the IBC,” the agency’s Vice President and Group Head – Structured Finance, Abhishek Dafria, said in a report.

The increase in the resolution amount in FY2022 would depend on the expected resolution of a large housing finance company which is awaiting the NCLT‘s approval but is also under litigation in the higher courts, he said.

In the current financial year, the realisation by the financial creditors would depend on the successful resolution of 8-9 big-ticket accounts, as more than 20 per cent of the agency’s estimated realisation for the year could be from these alone, he added.

Dafria, however, said if the second wave of the pandemic does not subside soon, it could have a bearing on the agency’s estimates as the difficult operating environment may result in a slowdown in the resolution process, especially for smaller-sized entities, and would also result in an increase in the haircuts for the lenders.

The agency said the pandemic has increased operational challenges for the various parties involved in a CIRP, which resulted in limited cases yielding a resolution plan. The suspension of new proceedings under the IBC for the entire FY21 resulted in a sharp slow-down in the resolution process.

From its commencement in December 2016, 4,376 CIRPs have been admitted, of which 2,653 were closed till March 2021, the report said.

The agency believes that there have been some positive outcomes from the presence of the IBC despite the delays that are becoming common.

“About 40 per cent of the cases admitted by the NCLT were closed on appeal/ review or settled or withdrawn under Section 12A which highlights that at least some promoters have been more willing to pay their dues to keep the IBC proceedings at bay,” it said.

For CIRPs that have yielded a successful resolution, the financial creditors have realised/are expected to realise an average 39 per cent of their claims while the realisation value, in comparison to their liquidation value, stands at 180 per cent, the report said.

“Nonetheless, the extent of cases being referred to liquidation remains high at about 40 per cent and only a quarter of such cases have seen the liquidation process come to a conclusion.

The average realisation through liquidation has been a mere around three per cent of the claim amount,” the agency’s Assistant Vice President and Sector Head, Sankha Subhra Banerjee, said.

Improving the turnaround time for successful resolution and finding enough interest in defaulting assets from external parties in the current environment will remain the key challenges for a while, he added.



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Distraught depositors want PMC Bank revived soon

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Distraught depositors of the scam-hit Punjab and Maharashtra Co-operative (PMC) Bank want the Reserve Bank of India (RBI) to speed up revival/reconstruction of the bank as they are in dire need of money to meet exigencies arising from the second wave of the Covid-19 pandemic.

Some of the depositors, especially the elderly, are barely able to get by despite having lakhs and crores of rupees locked up in the bank, as the RBI clamped down on deposit withdrawal since September 24, 2019, capping it at ₹1 lakh per depositor for the entire period that the bank is under Directions.

With RBI extending its Directions against the bank for the fourth time from April 1 to June 30, 2021, depositors are wringing their hands in despair that even after 19 months no solution to their woes is in sight.

RBI extends ‘directions’ against PMC Bank by 3 months

They pointed out that while depositors of other troubled banks such as YES Bank and Lakshmi Vilas Bank were rescued in double-quick time, when it comes to their bank, the rescue process has been drawn out.

Complex process, says RBI

Chander Purswani, President, PMC Depositors’ Forum, said: “The Bank should be revived/ reconstructed on SOS basis…Depositors are losing their lives amid the raging pandemic. These are testing times for all of us. The authorities should have some mercy on us.”

PMC Bank revival: Phased deposit withdrawal likely for customers

In a statement issued on March 26, 2021, the RBI observed that PMC Bank had received binding offers from certain investors for its reconstruction, in response to the Expression of Interest (EOI) floated by the bank in November 2020.

“RBI and PMC Bank are presently engaging with prospective investors in order to secure best possible terms for the depositors and other stakeholders while ensuring long-term viability of the reconstructed entity,” the central bank said.

The RBI also emphasised that given the financial condition of PMC Bank, the process is complex and is likely to take some more time.

Depositors’ angst: tweets say it all

Vasu Chhabria (@vasuchhabria) tweeted: “Reqst PMCBank Reconstruction/Resolution on war footing. Depositors losing lives. Pls don’t punish innocent citizens tax payers.

“Delay is costing lives. 19 months passed 118 depositors dead. What is their fault? It’s their hard earned money…”

Prem Kodnani (@drkodnani) tweeted: “If corona virus symptoms 1: difficult to get tested 2: difficult to get ambulance 3: difficult to get bed 4: difficult to get oxygen 5: difficult to get Remedesivir 6: to get all this, we require money…”

Srikanth Iyer (@SrikanthIyer10) tweeted: “Pls have humanity towards us v r also citizens of India rescue us by merging Pmc Bank with nationalised bank immediately it’s need of the hour…We can’t have access to our own hard-earned money.”

PMC bank was placed under RBI Directions with effect from the close of business on September 23, 2021, due to a huge fraud perpetrated by the promoter of a real estate group and some bank officials.

The Centrum-BharatPe combine is believed to be the front-runner in the race to buy PMC Bank.

As per the EOI floated by PMC Bank in November 2020, subsequent to commencement of the normal day-to-day operations, it will be open for the investor(s) to convert the bank into a Small Finance Bank (SFB) by making an application to RBI, subject to compliance with the RBI guidelines on Voluntary Transition of Primary (Urban) Co-operative Banks (UCBs) into SFBs.

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RBI approves Piramal resolution plan for DHFL

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Surabhi

The Reserve Bank of India is understood to have approved the resolution plan for Dewan Housing Finance Corporation Ltd submitted by Piramal Group.

“We understand that the RBI has approved the DHFL resolution plan from Piramal Capital and Housing Finance, submitted by the Committee of Creditors,” said Piramal Enterprises Ltd in a statement on Thursday.

The lenders are likely to take the proposal to the National Company Law Tribunal by next week for approval.

Piramal Capital and Housing Finance Ltd had emerged as the successful bidder for debt-laden DHFL in January this year after multiple rounds of bidding.

In the voting by the CoC, Piramal had garnered 94 per cent of the votes, while Oaktree Capital received 45 per cent of votes.

The troubled housing finance company was the first financial services firm to be taken to NCLT in late 2019, and its resolution has been closely watched.

The claims of lenders that have been admitted in NCLT in the case of DHFL aggregate to about ₹81,000 crore.

The total consideration for DHFL was ₹34,250 crore, which includes an upfront cash component of ₹14,700 crore and a deferred component of ₹19,550 crore, PEL had said in its third quarter results, adding that the acquisition is in line with its strategy to diversify its loan book and increase granularity.

“We are changing our financial services business model from one that is wholesale-led to a well-diversified one; this also being one of the key objectives behind our bidding for DHFL,” Ajay Piramal, Chairman, PEL, had said in the third quarter results.

According to the resolution plan, Piramal will merge its existing financial services business with DHFL. The merged entity is expected to focus largely on the retail real estate and lending space.

For the quarter ended December 31, 2020, DHFL posted a consolidated net loss of ₹13,095.38 crore in the third quarter of the fiscal year against a net profit of ₹934.31 crore in the same period a year ago.

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Bad bank should have been set up 3-4 years back, not now: Kotak Securities report

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Establishing a bad bank today would aggregate but not serve the purpose that has been observed in other markets, Kotak Securities Ltd (KSL) said in a report.

Bad bank is perhaps well served in the initial leg of the loan recognition cycle, it added.

“While we are unaware of its probability and design, creation of a bad bank would have been most fruitful three-four years back (perhaps just after the Asset Quality Review) or earlier when the stress was just building up and banks were looking to delay recognition for various reasons.

“Today, the banking system is relatively more solid with slippages declining in the corporate segment for the past two years and high NPL (non-performing loan) coverage ratios, which enable faster resolution,” said KSL analysts M B Mahesh, Nischint Chawathe, Abhijeet Sakhare, Ashlesh Sonje and Dipanjan Ghosh.

Also read: Kotak Securities launches start-up investment and engagement programme

Based on insights gained from two key reports of BIS and IMF, the report observed that a successful bad bank needs a critical mass (healthy buy-in from lenders) of impaired assets, robust legal framework for debt resolution, along with strong commitment to reforms.

The analysts observed that segregation of impaired assets without sufficient recapitalisation has insignificant impact on future loan growth and NPL creation. A bad bank is expensive to establish, needs a well-defined mandate, and clear exit strategy.

Further, timing of formation and pricing of assets are crucial as the objective is to release stress from lenders early in the cycle so that they can refocus efforts in creating credit. Finally, there are instances of bad banks not achieving their desired objective, the analysts said.

After nearly a decade of elevated slippages, FY2019-20 saw a much lower slippage trend with evidence of it moving closer to normalisation before the impact caused by Covid-19, the report said.

The analysts said they are yet to assess the impact of Covid-19 but in their view the corporate portfolio appears to be holding quite well.

Also read: Rate of decline in fresh lending and deposit rates slows down: Report

Public sector undertaking (PSU) banks PSU, in particular, have gone through this with fresh equity (about ₹3.5-lakh crore over FY2016-21 by the government/Life Insurance Corporation of India) in the past three years and provision coverage ratio (PCR) improving to about 70 per cent from about 40 per cent in the past three-four years.

“A high coverage ratio ensures that faster consensus building is also no longer an issue. We have seen the introduction of IBC as well as consolidation in public banks. We had limited systemic risk from a liability perspective,” the analysts said.

The report observed that one of the key objectives of segregating impaired loans is to restore faith in bank balance sheets and help unlock funding market access. However, PSU banks control a large part of the banking system with a high contribution to NPLs.

“Managerial incentives across organisations are probably still fully not aligned to maximising value through early recognition of bad loans,” the analysts opined.

Also read: Kotak Securities launches platform for buying US equities

Further, given the high contribution of retail deposits, funding stability of these banks is uncorrelated with their financial performance for an extensive period of time.

The analysts said lack of credit growth, especially in the corporate segment, is often attributed to PSU banks’ risk aversion (low capital/high NPLs in the past).

“However, we do argue that corporate deleveraging has been quite slow and credit demand, especially by the better-rated and large wholesale borrowers, has been slower,” they added.

The behaviour of PSU banks has been different with respect to retail and micro, small and medium enterprise (MSME) lending, as these banks have been helping credit growth, especially in recent years and much higher than trend levels post the Covid-19 outbreak.

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