Long-term impact can be negative if NPAs not resolved: ICRA

By Anjana Das

New Delhi, April 2 (IANS) The quashing of RBI's 180-day period resolution or NCLT mechanism of NPA recovery by the Supreme Court can lead to negative impact for the banks if the loans are not resolved, said Anil Gupta, Vice President & Sector Head - Financial Sector Ratings, ICRA.

But provisioning will not be impacted, according to Gupta, because the RBI's asset provisioning and classification norms are not different for accounts impacted by the RBI's February 12 circular. Higher provisioning would have left banks wanting for more funds from government to meet credit and regulatory capital.

"It (the order) will benefit both banks and companies in the short run as banks will not have to do a fire sale of these assets under NCLT which was undermining the value and impacting the recoveries," Gupta told IANS.

"But there are long-term side effects. For instance, if a resolution is not happening and there is just 'ever-greening', then it can create a situation similar to what we have now. If you allow the defaulting borrowers to continue owning the assets without actually resolving it, and without recovering the NPAs, the situation will remain as much negative," Gupta told IANS.

He said now banks will not be under pressure to take the accounts to NCLT immediately. They can try to resolve and if the resolution does not come about, then NCLT option is always there. It was a compulsion to go to NCLT earlier for the banks whether they wanted to take the defaulters to the insolvency court or not.

There are 35 defaulting power projects (35) under NCLT. If all of them are taken to NCLT and bids are invited for new buyers, then it is difficult to sell so much capacity at one go. The outcome of recoveries will be low, he said.

He said banks and companies can look at the manner of resolution in Jet Airways if they have some mechanisms outside the IBC.

The SC order will not make the defaulters less fearful of the repayment of loans because the option to refer the defaulters to NCLT is already with the lenders. Their powers are not taken away by today's order. There can be outside NCLT decisions, revival if lenders feel, he added.

Power companies will benefit maximum because the quantum of NPAs is high. Had the stuck power projects been put up for sale, then losses of promoters and bankers would have been much higher, said the ICRA analyst.

(Anjana Das can be contacted at anjana.d@ians.in)