Banks may have to lean on promoters to bring in equity or reduce debt, as corporate stress continues to remain high. Share of debt with companies that are not generating enough quarterly revenue to pay bank dues has gone up to 43 per cent. A report by Credit Suisse, share of companies whose quarterly earnings were not enough to cover interest cost rose to 43 per cent in Q1FY19 as against 41 per cent in Q4FY18. The increase came as Tata Motors (debt £6.9 billion) saw its first quarter earnings fall below levels enough to cover interest. Other highly indebted companies, Bharti Airtel (debt £10.1 billion) saw its earnings fall below its quarterly interest obligations, and Idea Cellular (debt £6.9 billion) saw its earnings fall below interest obligations for three quarter, but has since been acquired.
With insolvency proceedings seemingly the only option to resolve bad debt, the National Company Law Tribunal (NCLT) has almost reached full capacity with bankruptcy cases. Over 2,200 cases have been filed and resolution of the cases referred to bank by the RBI are taking longer than the timelines prescribed. The RBI had in June last year, asked banks to proceed against 12 large corporate with borrowings of over £1 billion each, adding to £23 billion in the NCLT. Later in December 2017, the RBI provided banks with a list of 27 more companies with total borrowings of £13.4 billion.
The two lists have referred to as NCLT-1 and NCLT-2 cases. Banks had raised hopes of quick resolution of chunky non-performing assets following the directive. Of the first list of 12 cases, two have been resolved and accounted for in the first quarter. This includes Bhushan Steel and Electrosteel where the ownership has been transferred to Tata Steel and Vedanta.
The companies had a debt of £4.7 billion and £1.24 billion respectively. Meanwhile, companies like Monnet Ispat and Amtek Auto, with debt worth £972.7 million and £1.04 billion respectively, were approved in the second quarter and ownership transferred to JSWAION and Liberty House.
Firm India Ratings said the timeline could be reduced to about 2-2.5 years, including litigation. It estimates that about £38 billion of bad loans could potentially be resolved during the rest of this year. Approximately £16 billion will become sustainable if the resolution proceeds under the defined timelines. It believes during 2018-19, £42 billion of the total stressed debt will be turned good as an outcome of the resolution.
The agency released a statement saying, “As the process is evolving, the resolution pace is likely to pick up in the next 6-12 months. The agency believes that success of the Insolvency and Bankruptcy Code (IBC) 2016 lies in substantial reduction of the overall resolution time, which is in turn critical for the development of debt capital markets in India.”
