Time is money

Clean-up in corporate balance sheets can't be sacrifices for banks again

The State Bank of India (SBI) seems to have lost patience like several other banks in dealing with stressed accounts. Otherwise, there’s no reason why it should put up Rs 15, 432 crore debt portfolio with the beleaguered Essar Steel for auction. This decision of SBI, the lead banker to Essar Steel may actually stymie the insolvency process that has experienced inordinate delay at National Company Law Tribunal (NCLT).

Even after 500-days, the NCLT resolution seems to have not ended, frustrating the lenders led by the SBI. Moot question is whether the notice auctioning its debt portfolio with Essar Steel tenable at all? Auctioning the debt portfolio outside NCLT, setting the reserve price of Rs 9,587 crore that works out to 38 per cent haircut has raised eyebrows in the corporate world. Well, SBI’s reserve price could be even lower than what Arcellor Mittal may have offered through the highest bid for total Essar Steel business at Rs 42,000 crore. Interestingly enough, SBI along with 92 per cent debtors were party to approving Arcellor Mittal’s bid through the NCLT. But, a section of analysts do believe that SBI is well within its right to auction its loan portfolio. Several banks have sold their debt portfolio to Asset Reconstruction Companies (ARCs) within the NCLT resolution process.

In the given circumstances, the NCLT resolution process with all its inadequacies could be the best bet for resolving twin balance sheet problem i.e. banks riled with bad debt and corporates that continued to default loans. In fact, over 70 per cent cases that have gone through NCLT resolution process reported inordinate delays owing to a clutch of issues. From behind the scenes machinations by willful defaulters to lack of coordination amongst lenders in their approach to debt resolution seem to have made the NCLT process painfully slow. Complex procedures, inadequate number of qualified and experienced insolvency professionals coupled with diverse interest have added to the pain.

That does not dim the fact that over Rs 2,00,000 crore worth of sticky loans with corporate India are on verge of resolution. This is a big positive for the Indian banking sector and corporates. Even in the case of Jet Airways, conditions set by Ethihad for buying out promoters stake may not be tenable. For instance, pricing Jet Airways shares at Rs 150 against the prevailing band of Rs 260–280 a piece coupled with insistence on disengaging promoters family led by Naresh Goyal points to the possibility of a big showdown between partners. This may invariably push Jet Airways towards an NCLT resolution given the company’s accumulated losses of Rs 10,700 crore, debt totaling to over Rs 8,000 crore and negative networth of Rs 7,000 crore. Alternatively, the lead banker SBI may not refrain itself from auctioning its loan portfolio in a haste. Or, the Jet Airways, once famed full services airline, may have to die a slow death that’s not desirable. Given the double-digit growth in aviation business, airlines may have to rejig their operations to stay put in the market place, strike deals with partners rather than fading away into oblivion. The Corporate Affairs Ministry, Company Law Board and other stakeholders will have to to hasten up insolvency resolution and make the process seamless.