Almost a year since the strategic debt restructuring (SDR) mechanism was formed to lessen stressed assets, banks are facing problems in getting buyers or reasonable valuation for the assets.
Since its formation last June, banks have evoked SDR on 17 cases worth `1 lakh crore, but no buyers have been found. The efforts have mostly been in power and steel, which have seen more than 60% of banks’ exposure.
The SDR route was suggested by the Reserve Bank of India to clean up banks’ balance sheets. Under the scheme, a consortium of lenders was to convert part of their combined loan to an ailing company, into equity, with the consortium owning at least 51% stake. This was to be done if the company failed to achieve milestones. The scheme was to provide relaxation from RBI rules for 18 months.
“There are teething problems,” said Jairam Sridharan, chief financial officer at Axis Bank. “The mechanism will take time to settle down. Some of the variables that you need to consider are willingness of existing promoters to participate in the equity dilution. There is a management question also. If a group of banks takes over, how to ensure good management? Thirdly, there are legal questions and roadblocks. The last…where are the buyers? The exit for the bank is only when there are buyers after 18 months.”
“SDR is better than six months ago, from our conversations with bankers and borrowers,” said Rajiv Lall, MD at IDFC Bank. “It will take more time. Converting debt into equity becomes difficult if there is no agreement from borrowers. Some bankers are also reticent as it could invite investigation from legal agencies.”
{{/usCountry}}“SDR is better than six months ago, from our conversations with bankers and borrowers,” said Rajiv Lall, MD at IDFC Bank. “It will take more time. Converting debt into equity becomes difficult if there is no agreement from borrowers. Some bankers are also reticent as it could invite investigation from legal agencies.”
{{/usCountry}}Banks can restructure loans by not treating them as non-performing assets and by making provisions of 15% on the balance debt.
According to the head of a firm specialising in turnaround management, “About 20-25 cases have been doing the rounds. There is some reluctance from banks due to reasons of getting managers in place, ability of taking control of the management.