Bankruptcy Code: Indian Banks Counting Their Losses

The bankruptcy proceedings would force Indian banks to book heavy losses. They are now focussed on minimising the damage

- Anand Adhikari

The newly minted insolvency and Bankruptcy Code, 2016 (IBC) has put banks in a spot. The bankruptcy process is forcing them to book massive losses. Take a look. Promoters of Mumbai-based Shirdi Industries, a manufacturer of decorative laminates for the furniture industry, left just 26 cents for a dollar on the table for bankers as part of the IBC resolution. In the bankruptcy proceedings against Noida-based oil producing company JEKPL, bankers managed to negotiate just a cent higher than what Shirdi Industries offered them. Worse, in the case involving Hyderabad-based Synergies Dooray Automotive, bankers didn’t even get the liquidation value. They accepted a paltry 6 cents for a dollar.

This is the state of affairs of most mid-sized companies under the bankruptcy code and bankers are taking huge haircuts on their loans. The situation is no better for the dozen large cases referred by the Reserve Bank of India (RBI) for bankruptcy in June last year. Kolkata-based Electrosteels Steel is the first company to emerge from the bankruptcy proceedings – here, the successful bidder Anil Agarwal’s Vedanta has offered around 50 cents for a dollar to bankers. Barring the examples of steel giants Essar Steel and Bhushan Steel, where there is interest from strategic players or rival steel majors for consolidating their market share, the rest of the large bankrupt companies are not fetching good value. Interestingly, there are three large cases – Lanco Infratech, ABG Shipyard and Alok Industries – where bidders are offering close to the liquidation value, generally 10 per cent of the total value of the company.