Enthused by speedy recovery of loans worth USD 2.5 billion by three lenders including ICICI Bank within days of mega USD 13-billion Essar deal, banks are now looking at resolution of stressed assets totalling Rs 1.25-1.50 lakh crore (nearly USD 20 billion) in coming months.
Having broadly completed the first two stages of ‘recognising’ the stressed assets and of ‘reserving’ or provisioning for such loans in their accounts, the banks are now betting big on ‘resolution’ part of what is being billed by some top bankers as ‘3Rs’ formula to recover their dues.
With the Essar deal coming in as a major catalyst, the banks are prioritising the resolution process by focussing on helping in sale of businesses by corporate borrowers and by converting debt into equity at operating profit-generating companies, according to some top bankers.
Without naming the companies where such deals are in the advanced stages, the bankers said those involved in manufacturing sector stand a good chance of attracting suitors — mostly from abroad and some cash-rich enterprises from within the country with strategic interest in the respective business areas.
Among foreign companies, those from Russia, Canada and Gulf countries are expected to buyout assets in a big way, while a few domestic conglomerates are also looking at strategic buyouts of assets from debt-ridden groups.
As per industry estimates, the banks have classified loans totalling Rs 1.25-1.5 lakh crore as ‘stressed assets’ that can be recovered faster through various ‘resolution’ methods like sale of assets, transfer to ARCs and RBI-provided tools like SDR (Strategic Debt Restructuring) and S4A where debt can be converted into equity while allowing existing promoters to run the businesses where operating profit is being generated.
The ‘resolution’ process has got a major boost after three top lenders — ICICI Bank, Axis Bank and StanChart — got back an estimated USD 2.5 billion last Friday as part of the first payment for their debt exposure to the Ruias-led Essar Group.
The two Indian lenders — which together had an exposure of USD 1.5 billion — will get back nearly half of their money or about USD 770 million in cash, while further USD 750 million of debt will get transferred to Rosneft-led consortium and to Essar’s ports and other businesses, as per the terms agreed upon by them.
Out of the total cash component, nearly USD 350 million was paid in cash to the two Indian banks last Friday, which together with interest payout of about USD 100 million, takes their total collection from Essar to about USD 450 million, banking sources said. ICICI Bank’s share in the total payout is three-fourth, while the remainder is of Axis.