 "Bankers sceptical about outcome from JLF review")
Bankers are sceptical of reaching a meaningful outcome while reviewing cases under the joint lenders forum (JLF), given the headwinds faced by leveraged companies and tardy pace of asset sales.
Resolution of stressed assets is high on the agenda for this quarter’s JLF review. Banks are soon set to review cases this quarter.
A chief executive of a large public sector bank said banks would conduct reviews diligently but not much movement was expected. The pace of improvement at the ground level was painfully slow. Some large public sector banks (PSBs) who reported huge losses in 2015-16 are unable to participate in the resolution process in a meaningful way. Managing decision-making at JLFs is also a challenge due to a large number of lenders, bank executives said.
According to Reserve Bank of India’s rules, banks have to form a JLF as soon as an account with exposure of Rs 100 crore or more is reported by any of the lenders to RBI’s database as SMA-2 — accounts with dues of 60-90 days. Lenders also have the option of forming a JLF even when the exposure in an account is less than Rs 100 crore and dues are for 30-60 days.
At present there is no banking industry-wide mechanism to track the progress of JLFs, including how many have been formed. Review of big-ticket stressed cases, especially in steel and construction sectors, would require hard decisions, including deep restructuring. JLFs for many stressed cases had met in March 2015-16. Many promoters had given assurances of infusing equity, reducing debt leverage and selling some asset to raise funds.
Senior State Bank of India executives said banks had commissioned techno-economic viability studies and forensic audits for stressed cases.
These reports would form the basis for further action. The country’s largest lender, State Bank of India, and private lender ICICI Bank lead most JLF reviews for big-ticket accounts. But many medium-size accounts could have small or medium-sized banks as the leader of the consortium, public sector executive said.
There has been a steep deterioration in the corporate loan portfolio, resulting in higher slippages to non-performing assets (NPAs) in the second-half of financial year 2016, pushing provisions for NPAs. The slippages were primarily from vulnerable sectors such as iron and steel, infrastructure, and construction, mainly from banks’ large corporate and mid-corporate loan book. As a further effort to resolve problems of big-ticket loans, RBI released rules for the debt recast under The Scheme for Sustainable Structuring of Stressed Assets. The scheme will cover projects that started commercial operations and have outstanding loan of more than Rs 500 crore.
