The reader of Business Today would be aware that we have been writing about the mounting non-performing assets (NPAs) of banks in India, and especially the government-owned banks regularly. We have examined how the rising NPAs would force the banks to raise enormous capital in order to meet the capital adequacy norms set by Basel III. We have looked at how banks tried to fix their bad debt problems with the help of asset reconstruction companies (ARCs) as well as why this has not been a successful approach. And also, why strategic debt restructuring (SDR), which allowed companies to restructure their debt, did not work out as anticipated. We have examined the efforts of the government and the Reserve Bank of India (RBI) to clean up the mess - and both the advantages as well as the flaws of each initiative they have taken.
Despite the RBI and the Central government taking multiple steps to solve the NPAs, the problem has only been getting worse. At last count, the loans classified as NPAs by banks had touched Rs 7.28 lakh crore. An equal amount could be classified as stressed loans, which are headed towards becoming NPAs. The total amount of bad loans with the banks today is in excess of Rs 14 lakh crore. Another Rs 1.7 lakh crore would possibly be in the form of downgraded debts, which include bonds that have been sold to mutual funds, foreign and domestic investors.
Out of these Rs 7.28 lakh crore of NPAs, a dozen companies account for 25 per cent of the NPAs. The lenders are trying to sort out these specific NPAs by initiating insolvency proceedings against almost all of them. How will the new approach pan out? Several companies from this list have chosen to raise objections at the NCLT, the adjudicating authority for bankruptcy. A large corporate house has approached the High Court, challenging the bankruptcy proceedings initiated against the company, though it was not successful. In future, there will be some who would go to the appellate authority or Supreme Court against the NCLT judgments. A few others are cooperating with the banks and trying their best to pay back the loans by selling assets.
Each case is different and there are still plenty of hurdles in the way. Even after insolvency proceedings have been initiated, there is no guarantee that the banks will ever get back even the principal they lent. In some cases, the assets would be deteriorated and are no longer worth much. In other cases, there might be no buyer interest because there was overcapacity. In still others, there is the problem of managing the assets once they have been taken over.
Our cover story this issue looks at 12 companies, how they got into trouble, what their lenders are doing to recover money, and how the company promoters themselves are reacting to the lenders' initiatives.
This issue also contains our sector report on infrastructure. There is some good news on that front, but also plenty of problems that still need resolving. The sector report is on page 80.