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HC asks on record RBI orders on Essar Steel's insolvency proceedings
The Gujarat High Court on Thursday directed for placing on record before it an RBI directive to a consortium of 22 lenders to initiate insolvency proceedings against Essar Steel following its high Non-Performing Assets (NPAs).
 
Hearing the July 4 petition filed by the major steelmaker to seek quashing of insolvency proceedings, a single bench of Justice S.G. Shah expressed its surprise that the Reserve Bank of India (RBI) directive to a consortium of lenders led by the State Bank of India and Standard Chartered Bank had not been placed on court record neither by the petitioner nor the respondents.
 
It is this directive that is under challenge by Essar Steel, which has claimed in the court, among other things, that it was kept in the dark while the central bank asked the lenders to initiate the insolvency proceedings when the company was in a restructuring mode. 
 
The company also alleged that it is being singled out for action among all 12 major accounts identified as NPAs totalling Rs 7,50,000 crore.
 
Essar Steel had a debt of Rs 45,655 crore, of which Rs 31,671 crore had turned NPAs for banks by March 31, 2016. This increased to Rs 32,864 crore by March 31 this year.
 
The RBI, meanwhile, has disputed the company's claims. 
 
The central bank's counsel Darius Khambata told the High Court that it was crystal clear from the minutes of the meeting between the company and its lenders that it was "far from reaching any restructuring settlement". 
 
Also, he contended, Essar Steel was quite aware of insolvency proceedings against it at the National Company Law Tribunal.
 
As for the company's allegation that it was being singled out, the RBI counsel said the insolvency proceedings would actually help the company and added that the objective of the proceedings at the NCLT was to recover "maximum value in a minimum time-bound manner".
 
"The IBC (The Insolvency and Bankruptcy Code) is not for winding up a company but to resolve and restructurea to avoid winding up," Khambata said.
 
The RBI counsel said the list of 12 large NPAs against which the RBI had advised banks to initiate insolvency proceedings had been drawn to prevent the loss of public money. 
 
"The NCLT follows a time-bound, structured process, under statutory provisions. Its purpose is to maximise the value of assets and put it back into the system."
 
The hearing in the case will continue on Friday.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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Interest coverage ratio witnessed recovery in FY2017, says report

Banks are currently dealing with a challenging problem of stressed assets that has adversely impacted their profitability. As a precautionary measure, the Reserve Bank of India (RBI) wants banks to be prudent in their assessment of possible future stress in their asset portfolio, for which provisions needs to be made. In this regard, the RBI recently directed the banks to review various financial parameters of borrowers with the objective of framing policy for making provisions for standard assets. One such suggested parameter to be looked at closely is interest coverage ratio (ICR) that help understand and evaluate present and potential risks of borrowers. In general, the ICR witnessed a recovery in FY2017 after a continuous decline in the earlier period, says a research note.

In the report, CARE Ratings Ltd, says, "With regard to classification based on net sales, companies in the lower turnover bracket (net sales < Rs100 crore) had low interest cover and vice-versa. The classification of companies on their debt levels indicated that companies with higher debt (> Rs10,000 crore) were witnessed to have deteriorating debt servicing capabilities, which is a concern. Sectors like FMCG, automobile and ancillaries, pharmaceuticals and drugs, chemicals, consumer durables, construction material are better placed with regard to debt servicing capabilities."

In its analysis of 2,183 companies across industries excluding banks, oil exploration and refineries, finance and IT firms, the ratings agency found that interest payment capabilities did come down till FY2016, but improved marginally in FY2017. "For all years, the ICR is above 3 indicating comfortable debt servicing capability of the corporates in these years. However the interest coverage ratio declined considerably from 4.47 in FY2013 to 3.68 in FY2016, improved marginally to 3.84 in FY2017," it says.

According to the ratings agency, the recovery may be attributed to a combination factors. It says, "First interest rates have come down in FY17 which has lowered the outflow on this score. Also companies have been substituting cheaper credit points (CPs) with bank credit to take advantage of lower market rates compared with bank MCLRs. Second, overall borrowing by the corporate sector has been subdued due to a drop in investment. Third, as per CARE’s study on corporate results for FY2017, growth in profits also improved for a select set of companies relative to FY2016."

 

 

 

 

 

 

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