Through the non-performing assets (NPAs) ordinance, the government has given the banking regulator Reserve Bank of India (RBI) overarching powers to enter the joint lenders' forum meetings and direct banks on how to bring about resolution. Banks are hopeful that this would speed up the resolution process. Already, companies are queuing up to ask for deep restructuring by extending the repayment period, along with some concessions in the interest repayments. But without government recapitalising banks, how will they give haircuts as they also need to set aside capital for bad loans that have ballooned to over Rs 9 lakh crore at the end of the fourth quarter ended March 31, 2017.
The RBI is also toying with an idea of handing out independent ad hoc rating assignments to the rating firms and pay them via a fund created from the contributions by banks. The lenders are already doing this. So why repeat it?
The bigger challenge is to find out if the promoters are willing to make sacrifices and bring in cash flows before anything more is doled out to them. The corporate debt restructuring (CDR), a restructuring mechanism that RBI had implemented a decade ago, has hardly produced any success except for cases like Wockhardt which had non-core assets like land parcels and hospitals to be sold. Some cases like Essar Steel, which is now asking banks for a deep restructuring, had made their round through the CDR mechanism. Unless promoters of companies are prepared to take some honest sacrifices, banks will continue to find it tough to recover loans and put back the stressed companies on the road to growth.
