Better Realisation: Eyeing one-time settlement for more IBC cases

State-run lender United Bank of India, which is working on different integration processes as per the schedule for the three-way bank merger, has withdrawn “a couple” of insolvency petitions, which it had filed against the defaulting companies, for settlements of debts through one-time settlement (OTS) with the promoters for much better realisation. The bank is reviewing such settlement opportunities for more insolvency cases, where it is the sole lender.

Talking to FE, United Bank’s MD and CEO Ashok Kumar Pradhan said the bank has not so far seen any successful resolution for cases referred by it to the National Company Law Tribunal (NCLT) as a sole lender under the Insolvency and Bankruptcy Code. The city-based lender has referred as many as 38 cases to bankruptcy courts to commence Corporate Insolvency Resolution Process (CIRP) for the defaulting companies.

“Whatever references we have made to the NCLT as the sole banker, I have not seen any resolution so far. And, the kind of value lenders are getting through NCLT, I would prefer to go for OTS with the promoters, that will perhaps give me more value,” Pradhan said in an interview.

“I told my people talk to the borrowers, if there is an opportunity for OTS, we are willing to take it, instead of waiting for an indefinite period and not knowing that what kind of realisation would come. We have withdrawn a couple of accounts from NCLT and we would prefer to withdraw few more cases…we are reviewing it on a regular basis,” he said.

“These are small accounts. But, I see OTS as a better resolution mechanism, which gives me more money than the NCLT process,” the MD added. The lender’s proposed merger with Punjab National Bank and Oriental Bank of Commerce is most likely to come into effect from April 1, 2020. PNB is the anchor bank for the merger, where the three lenders will be merging to become the second largest public sector bank in the country.

Pradhan said the kind of realisation that lenders were getting through the CIRP was not good for the banking industry as haircuts were huge even in the large accounts. For reducing its bad loans significantly by this fiscal end, United Bank, however, would depend mainly on insolvency resolutions for cases like Bhushan Power & Steel and Alok Industries. The bank is looking to recover around Rs 1,800-2,000 crore worth of non-performing assets (NPAs) during the fourth quarter this fiscal.

“I expect the bank’s gross NPA ratio to be around 9% at the end of this financial year, while net NPA ratio to be around 4-5%. During the current quarter, we may recover around Rs 1,800-2,000 crore. That will be giving us a good comfort because we have been able to control fresh slippages,” Pradhan said.

At the end of the second quarter, the bank’s gross NPAs in absolute terms stood at Rs 11,544 crore. While gross NPAs as a percentage of total loans stood at 15.51%, net NPA ratio was at 7.88% as on September 30, 2019. The bank is under the prompt corrective action (PCA) framework of the Reserve Bank of India.

“During the third quarter, we have not been able to recover any money through the NCLT route because we did not have exposures to those big-ticket resolutions that happened during the period. If resolutions in Bhushan Power and Alok Industries happen in the current quarter, it would be a substantial boost for the bank,” Pradhan said.

After successful resolutions of Bhushan Power and Alok Industries, the bank is likely to write back over Rs 500 crore of provisions with having a total exposure of around Rs 1,500-1,600 crore.

On the ongoing integration process for the three-way bank merger, Pradhan said the steering committee was likely to finalise harmonisation of product, policies and processes by the end of January. “The merger is going on as smoothly as it could be. Around 34 committees are working for the harmonisation. These committees have been able to finalise the products. The reports are ready. It will be taken up at the meetings of the executive director level committees and steering committee, headed by the MDs of the three banks,” Pradhan said, adding the steering committee would take decisions on unresolved subjects.

The bank-appointed valuer has completed the process of valuation for United Bank of India. The share-swap ratio for the merger was expected to be determined in January, Pradhan added.