Page 8 - A Literary Review / NPAs

of 11 varyingly contradictory laws climbing by over a 1000 bips, of 2002 (ARCIL), crafted with the
Brainchild of the Siddiqui effectively giving the stressed
and directives into an effective even with a covid-19 freeze in idea of allowing banks to focus
Committee of 2000, it keeps a firms a make-over rather than a
vehicle of delivering swift tow. The IBC then followed up on on their lending forte whilst
knowledge repository of credit wash-over.
resolution for liquidated wind- their successes, paving the way offloading the debt-recovery
history of its participants. A
downs. The brainchild of late for the National Companies Law part to private specialists. The
crucial plug in the credit F. Asset Quality Review (AQR),
Finance Minister Sh. Arun Jaitley, Tribunal (NCLT) to specifically history of ARCs in India
machine, it enables lenders a 2015 / The Big Whip.
it sought to condense the wide attend and adjudicate corporate meanwhile, has been relatively
The usual Indian public sector banker at a
better picture of their borrowers,
hard day's work.
array of pre-existing legislations instances of debt non-repayment young. Nevertheless, they’ve
with around 600 Million With growing notions of critically
namely: The Presidency Towns and subsequent forbearance, made strides in debt resolution
individuals and 32 Million destabilizing evergreening, RBI
Insolvency Act, 1909; Provincial sharing the brunt with the particularly after IBC
business covered under its radar. cracked down with its
Insolvency Act, 1920; The overcooked DRTs and their empowerment in 2016.
thunderous interventionism in the
Companies Act, 2013 (Amended), endless sea of queued cases - all The biggest thorn in the ARCs
C. 5/25 Ru le, 2014 books of all Scheduled
Recovery of Debts Due to Banks exigencies one after another - business practice has been
Commercial Banks to unearth the
and Financial Institutions Act, 1993
freeing them up to cater to regulatory overreach mitigating
The notorious poster boy of carpeted troves of precarious
(Amended) and finally the Sick
individual grievances, the domain any substantial stake. It
“kicking the can down the road”, forbearance. Financial
Industrial Companies (Special
they were undeniably better prevented them from turning
the 5/25 restructuring scheme inspections of this nature usually
Provisions) Repeal Act, 2003.
suited for from the off. All-in-all, around businesses to sustainable
allowed amortisation to be are nothing out the ordinary, in
Quite the longlist of ex solvency
a big win for debt resolution and profitability as ARCs were legally
extend across a 25-year period fact RBI’s Annual Financial
laws.
a sparkling prelude for better required to hand-over
with adjusted interest rates at Inspective (AFI) is a fairly routine
This would then enable a
things to come. management back to the original
every 5-year mark. It ensured tool of examining the structural
sensible recourse for market exits,
promoters once enough
better liquidity through underbelly of bank’s dealings.
particularly in an Indian
collateral reconstruction had
"The economic roadmap standardisation of seemingly With small samples of asset
landscape where – according to
been done to meet debt
towards the handling of bad loans thereby cutting into classes examined to verify
World Bank data – it took on repayments. So, in effect, ARCs provisioning, however, all that at veracious viability, ensuring
mounting NPAs has been a
average almost about 4 years to were left holding the bag on the cost of long-term interest repayments are in line with loan
slippery slope. With a vast
go through the insolvency cycle, debt, while the assets went back spikes, burdening borrowers classification. However, following
array of initiatives planned
twice that of China, and multiple to the distressed companies. deeper in the red in the name of a lengthy stretch of dubious
and executed, with little to
times that of the US. Mostly Leaving little onus for ARCs to a temporal quick fix. And dealings and statistical
no continuance or accord.
thanks to the countless look anywhere beyond the short- cornering lenders to “evergreen” anomalies, RBI sought to pop the
The one-off nature of these
complimentary & supplementary term turnarounds of liquidation. loans, thus elongating the hood. With a mid-2015 shock-
projects is what’s been the
routes all the way up to 4 The effect of which clearly vicious cycle of bad and-awe inspection (between
sore thumb in economic
separate inter-ministerial avenues stands out in the diminishing
indebtedness, an exacerbation. August-November), they went
planning, throwing
for eking out a conclusionary end, recoveries plummeting year-on-
And as 2017’s Economic Survey deep into the cesspool of debt
cogency out the window
with parallel procession all the year from FY12 highs of 72% of
put it, “This in turn has forbearances uncovering a fatal
for momentary redressal,
way through, a jungly jangling all security receipts, down to
aggravated the initial problem”. behemoth of delinquencies.
devoid of overarching
way. 18.7% and 9.5% in FY17 & FY18
A succinct conclusion illustrative With sample sizes significantly
themes".
Statistically that translates respectively. Amounting to a
of the kind of shoddy foresight chunkier than the AFIs before, RBI
nicely into a deep clean-up of the mere 5% in the NPA ocean,
3.1.2. Quantitative/Economic that perpetuates this mess. stuck its needle surgically
credit closet. As CRISIL Ratings’ hardly scratching the surface.
Measures uncovering years of missed
President Gurpreet Chhatwal, The pandemic further drove the
As discussed before, the D. Strategic Debt Restructuring, repayments and evergreening.
“The recovery rate for the 94 nails on their ongoing flailing
economic roadmap towards the 2015 Mandating straightening up of all
cases resolved through IBC by throttle with a sharp drop in
handling of mounting NPAs has such cluttered instances of bad
fiscal 2019 is 43%, compared with bidders as well as delay in
been a slippery slope. With a vast Quite simply the conversion of loans to be classified properly as
26.5% through earlier payments thanks to the overall
array of initiatives planned and debt into equity for lenders to the NPAs they were. Needless to
mechanisms”. On top of which externalities surrounding Covid
executed, with little to no levy their loans in the form of say, ensuring a long winter for
liquidation values have also restrictions.
continuance or accord. The one- equity shares in the borrowing the shaken-up banks.
soared to nearly double of what Nevertheless, there is strong
off nature of these projects is company. Intrinsically linked to With clear counts of asset quality
previous valuations had put them hope for ARC sector
what’s been the sore thumb in JLFs (Joint Lenders Forum). deterioration and ballooning
to be, under the sole aegis of IBC. consolidation with the shifting of
economic planning, throwing NPAs, bank profits plummeted. As
With resolution times significantly more prerogative to take on
cogency out the window for E. Sustainable Structuring of the 0.4% provisioning for
boosted too, albeit not exactly equity in the long-term and have
momentary redressal, devoid of Stressed Assets, S4A, 2016 standard assets had to be
optimally progressing, still with a say in future management of
overarching themes. pumped up to 15% for NPAs,
only about 32% of the over 1,100+ stressed firms, if only. But with
An extension to the previous quarterly losses came in
cases outstanding having 270 the resolution process strongly
A. Asset Reconstruction ideas expressed by SDRs, the thumping waves of thousands of
days or more periodicity, simplified by IBC and the NCLTs
Companies, 2002 & 1991 S4A framework allowed for Crores. With the great expose
tectonically down from the 4+ on the way, ARCs might just pull
slightly more advance operations particularly exposing PSBs
years it used to be not so long their weight.
The most defining axis of NPA on debt conversion, allowing for stresses, compared to relatively
ago (WB Doing Business, 2019).
resolution undoubtedly rests with convertible debentures as well smaller extent of NPAs for PVBs.
With a resolution-led focus B. Credit Information Bureau
the ARCs. Idealized with the 1991 as allowing the existing A necessary evil of sorts, RBI
IBC has categorically shown (CIBIL), 2004
Narasimhan Committee, and promoters to continue minority Governor at the time, Raghuram
better results, with loan recoveries
incepted with the SARFAESI Act management, Rajan highlighted the need for
#01 DRAFT VERSION
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