NEWS ON BAD AND DISTRESSED LOANS. High court asks on record RBI orders on Essar Steel's insolvency proceedings

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1 SOURCE: FIRSTPOST DATE: NEWS ON BAD AND DISTRESSED LOANS High court asks on record RBI orders on Essar Steel's insolvency proceedings The Gujarat High Court on Thursday directed for placing on the 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 4 July 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 31 March, This increased to Rs 32,864 crore by 31 March 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. Page 1 of 22

2 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. Page 2 of 22

3 SOURCE: LIVEMINT DATE: Bank of Baroda moves NCLT to recover Rs97 crore from Binani Cement Bank of Baroda has filed a petition against Binani Cement Ltd with the National Company Law Tribunal s (NCLT) Kolkata bench, seeking to recover Rs97 crore in an outstanding loan under the new Insolvency and Bankruptcy Code after the firm failed to come up with a restructuring plan to clear its dues. Lawyers for Binani Cement, a privately held firm of the Braj Binani Group, claimed Bank of Baroda s application had several technical flaws, and that its claim was minuscule compared with the total value of the group s assets, which, according to its lawyers, is Rs14,000 crore. Binani Cement, which is a unit of Binani Industries Ltd, had assets worth Rs5, crore at the end of March, according to the holding firm s auditor, MZSK & Associates. NCLT s Kolkata bench on Wednesday reserved its order on whether or not it would admit the lender s application under the new insolvency code. If the application is admitted, the company s board will be superseded and an interim resolution professional appointed to take control of its assets and operations. Bank of Baroda wants management consulting firm Deloitte to be appointed as interim resolution professional. Pratap Chatterjee, counsel for Binani Cement, said Bank of Baroda was not the lead lender to the cement maker and that it had not taken the approval of the joint forum of lenders before moving NCLT. Citing Reserve Bank of India rules, Chatterjee said Bank of Baroda was required to write to the joint forum and wait for at least 30 days before unilaterally moving NCLT. Chatterjee asked why Bank of Baroda was seeking the appointment of an administrator to recover a small loan of Rs97 crore when the lead banker, Central Bank of India, was not seeking dispute resolution in this manner. However, senior advocate Ratnanko Banerjee told the bench that Bank of Baroda s move had the backing of the joint forum of lenders led by the Edelweiss Group, and that Binani Cement was in distress because the management had failed to come up with a restructuring plan. Bank of Baroda has in its application said the firm had in a meeting with the joint forum of lenders in January committed to preparing a restructuring plan, according to the bank s counsel, Rishav Banerjee. Lenders met the management again in April, but no concrete plan for revival has yet been given, Banerjee said in his submission to the bench. In fiscal year , Binani Cement registered a net loss of Rs crore on revenue of Rs1, crore, according to the auditor of its holding company. Binani Industries net consolidated loss was Rs crore, and its consolidated liabilities exceeded its assets by Rs1, crore. The management has represented to us that it is hopeful of revival of businesses in the subsidiaries in the near future, auditor MZSK & Associates wrote in its report. Page 3 of 22

4 SOURCE: LIVEMINT DATE: Order to banks to speed up loan recovery within our powers: RBI The Reserve Bank of India (RBI) on Thursday said its 13 June directive to banks to speed up their badloan recovery was well within its powers, and that its classification of sticky assets could not be challenged. RBI lawyer Darius Khambata said this in the Gujarat high court during a hearing on Essar Steel Ltd s petition challenging the directive. The company, in its petition before the court, said it had initiated an effort with creditors to restructure its debt and was on the path of recovery when the central bank came up with the directive. RBI directed banks to refer a dozen defaulters including Essar Steel to the National Company Law Tribunal (NCLT) for speedy resolution under the Insolvency and Bankruptcy Code (IBC). The debtors made up a quarter of the Rs10 trillion of stressed assets clogging up the Indian banking system. Justice S.G. Shah, before whom the case is being heard, observed that neither the petitioner nor the respondents had so far submitted the original directive of the RBI or the supporting documents that were used as the basis while issuing the 13 June directive. RBI s criterion was that the total banking exposure of a company should be at least Rs5,000 crore and 60% of this should have turned non-performing by March Essar Steel s counsel Mihir Thakore, challenging this criteria, said the company should have been included in another category of 488 defaulters that were given six months to restructure bad debt or else be referred to the NCLT. Thakore said in his submission that RBI s directive had violated Article 14 of the Indian Constitution, which provides for equality before the law and equal protection. Apart from RBI, State Bank of India and Standard Chartered Bank are also respondents in the petition that has been filed by Essar Steel. RBI s Khambata as well as SBI s lawyers accused Essar Steel of suppressing facts before the court. Essar Steel owed lenders some Rs45,000 crore in total of which Rs31,671 crore had turned into an NPA as of 31 March Khambata said SBI had written to Essar Steel in February 2016, declaring its account an NPA. He claimed there was enough evidence to show Essar Steel was informed of insolvency proceedings to be initiated against it and had even agreed to go to the NCLT. Page 4 of 22

5 Even if we classify Essar Steel in the second category which they are seeking, there is no way the RBI can stop State Bank of India or Standard Chartered to approach NCLT, said Khambata. He said the IBC overrides any previous contradictory notification, which in this case was the ongoing corporate debt restructuring process. Also, there is enough on records to show that Essar s debt restructuring plan was not successful, Khambata added. He said if Essar had a revival plan, it could present it before the NCLT, which is a judicial body, where it would get a fair chance for representation. SBI s counsel told the court that under the IBC, any operational creditor who has lent Rs1 lakh or more can approach the NCLT. Essar Steel s counsel Thakore argued that negotiations had been under way with SBI, which leads a consortium of banks formed under Joint Lenders Forum (JLF), for debt restructuring when on 15 June, the RBI directed SBI to initiate bankruptcy proceedings against the company. Thakore said there was no evidence to show the lenders forum had rejected the company s restructuring plans. Standard Chartered s counsel Kamal Trivedi told the court that Essar Steel s Mauritius-based subsidiary had borrowed about Rs3,400 crore from the bank, for which the company was a guarantor. He said Essar Steel had in a communication dated 4 January informed Standard Chartered that it would repay the debt after 25 years by paying 1% interest. We would not wait for 25 years for their offer of 1% interest. We informed Essar Steel on 24 January that we would approach NCLT, Trivedi told the court. Page 5 of 22

6 SOURCE: FINANCIAL EXPRESS DATE: Insolvency and Bankruptcy Board of India finalising standards to set up info utility Amid greater application of the new insolvency law to resolve cases of large non-performing accounts (NPAs) with banks, the Insolvency and Bankruptcy Board of India (IBBI) is in the process of finalising technical standards for setting up a massive information utility (IU) that will have all the relevant data on lending and credit flow in the country, official sources told FE. The IU is a key pillar of the insolvency and bankruptcy ecosystem the other three being the adjudicating authority (National Company Law Tribunal and Debt Recovery Tribunal), the IBBI and insolvency professionals. Regulations for the information utility have been worked out. An IT company will be roped in to provide necessary software and other technological back-up. Data will be collected from all debtors and all creditors, both from the formal banking system and outside it, a senior government official said. An IU will be designed to store financial information that helps to establish defaults as well as verify claims expeditiously and thereby facilitate completion of transactions under the IBC in a time bound manner. Last month, the RBI recommended 12 cases, accounting for a quarter of the total NPAs, for resolution under the IBC. According to the Information Utilities Regulations, a public company with a minimum net worth of `50 crore is eligible to be an IU. Usually, a person should not hold more than a 10% of an IU s paid-up equity share capital, while certain specified persons may hold up to 25% of paid-up equity share capital. However, to start with, a person may hold up to 51% of paid-up equity share capital of an IU, but that has to be reduced to 10% or 25%, as the case may be, before the expiry of three years from registration, according to the regulations stipulated by the IBBI. The technical standards for the IU provide for matters relating to authentication and verification of information to be stored with the utility. Each registered user and information submitted to the IU will have a unique identifier. NPAs touched `7.11 lakh crore as of April, with most concentrated in publicsector banks, showed Capitaline data. The IBC is aimed at the turnaround of stressed assets or, in the case of liquidation, their quick monetisation. Secured creditors, including banks, are placed third in the preference order in case of any liquidation to receive the proceeds, after meeting the cost of resolution and workers dues. The IBC is barely one-year-old and the eco-system around it will evolve only with time, after more and more number of cases is resolved under this law, said another official. That doesn t mean the law shouldn t be applied to resolve cases of defaults until a fool-proof system emerges. An ideal system doesn t emerge over night, he said. Already around 150 cases of defaults (mostly of small and medium enterprises) have been admitted by the NCLTs for resolution under the IBC, and more than 2,000 applications have been filed before various NCLTs to invoke the new law for resolution, according to the officials cited earlier. This is no mean feat, considering that the law came into existence only in Page 6 of 22

7 SOURCE: MONEYCONTROL DATE: Insolvency: NCLT sends notice to Bhushan Steel, Bhushan Power The National Company Law Tribunal (NCLT) today issued notices to Bhushan Steel Ltd and Bhushan Steel and Power Ltd over insolvency proceedings initiated by their lenders State Bank of India and Punjab National Bank. The Principal Bench of the NCLT headed by its President Justice M M Kumar has directed Bhushan Steel and Bhushan Steel and Power Ltd to file their reply. The tribunal has posted the matter for the next hearing on July 19. The tribunal, which has also jurisdiction in the matters related to insolvency and bankruptcy code, was hearing two petitions filed by lead lenders SBI and PNB. Both the petitions have been filed under the Section 7 of the Insolvency and Bankruptcy Code (IBC), 2016, where the financial creditor initiates insolvency proceedings with a claim. Bankruptcy proceedings have also been initiated against other companies including Electrosteel Steel and Lanco Infratech and Jyoti Structures Ltd which are among the 12 NPA or bad loan cases identified by the Reserve Bank of India. SBI is the lead banker to defaulters like Bhushan Steel, Essar Steel, Jyoti Structures Ltd and Electrosteel Steel, while IDBI Bank has been directed by the RBI to initiate insolvency proceedings against Lanco Infratech. PNB is the lead banker for Bhushan Steel and Power. The 12 accounts alone constitute a quarter of the over Rs 8 lakh crore of NPAs. Of the total, Rs 6 lakh crore are with public sector banks. Once a case is admitted by the NCLT, there is a 180-day timeline to decide on a resolution plan, though 90 days can be given in addition. If a plan is not decided, then the company goes into liquidation. The internal advisory committee (IAC) of the RBI, after its meeting on June 13, had recommended 12 accounts totalling about 25 per cent of the gross NPAs of the banking system for immediate reference under Insolvency and Bankruptcy Code. These accounts have an exposure of more than Rs 5,000 crore each, with 60 per cent or more classified as bad loans by banks as of March Last week, Essar Steel moved the Gujarat High Court against insolvency proceedings initiated by the banks on the direction of the RBI. Essar Steel, in its petition, had appealed that the RBI notification arrived even while the firm was trying to implement a board-approved restructuring package. The company also said it has repaid almost Rs 3,467 crore in the last one year, adding that it employs 4,500 people and that if action was taken under the provisions of sections 7, 16 and 17 of the IBC, the administration of the company would go into hands of interim resolution professionals and it would result in the closing down of the company. Page 7 of 22

8 SOURCE: BUSINESS STANDARD DATE: Monnet Ispat eyes JSW deal to escape insolvency In line for insolvency, Monnet Ispat is looking for a window in an earlier buy-out offer from the Sajjan Jindal-promoted JSW Steel. The company on Thursday told the National Company Law Tribunal (NCLT) that it was in discussion with JSW Steel for a workable option. I have made some suggestions to the management of Monnet with regard to JSW Steel and hence seek time until Monday for the next hearing, a Monnet Ispat lawyer told the NCLT. In February, JSW Steel had made an offer to acquire stake in Monnet Ispat. Though the bid continues to stand valid under the Joint Lenders Forum, the lenders consortium, headed by the State Bank of India (SBI), had not approved the proposal. I do not know whether the management would go by the suggestions made but would need more time for sure to discuss with JSW Steel, the lawyer said. Officials of JSW Steel were not reachable. The SBI is not ready to wait till Monday, as the bank has been given instructions from the RBI (Reserve Bank of India) to resolve the issue as early as possible, said the bank s lawyer to the NCLT. The SBI is the lead banker to Monnet. The tribunal reprimanded the SBI for ambiguity in its earlier petition. It had wrongly stated the claim amount. It is important that you clearly state the claim and also the default amount. Your application does not even have the date on which the loan has defaulted, the NCLT told the bank s lawyer. Once you are at the NCLT, the RBI notification does not matter, your application has to be accurate, the tribunal added. The SBI said Monnet Ispat s total debt to the bank and its associates was Rs 2,242 crore and the latter had defaulted on Rs 1,539 crore as on June 21. The latest asset classification of Monnet Ispat has also been recognised as substandard by the lenders, the SBI lawyer informed the NCLT. The bank stated it had from time to time disbursed loan amounts to the company, even when Monnet had already moved into trouble and corrective plans were suggested by the Joint Lenders Forum. Working capital loans and a $27 million export guarantee facility were provided in 2015, along with non-convertible debentures. Page 8 of 22

9 As on March 31, 2016, Monnet Ispat carried a consolidated net debt of Rs 12,000 crore. The debt-equity ratio is 9.26 and it has been making heavy losses for a couple of years even at operating levels. While top-line of the Monnet has contracted, its net worth eroded significantly, year after year. Monnet s lawyer requested the NCLT judge to first see the outcome of the Essar Steel case before starting proceedings against it. The judge said Monnet should not take this line of reasoning as the cases were different and Essar was before a high court, not the NCLT. Monnet then asked for time till Monday for a written representation and possibly a resolution plan to be submitted before the court. The judge, therefore, deferred the case till Monday. A lot depends on what happens in the Gujarat High Court regarding the Essar case. It seems all the companies facing insolvency charges would take the same line of reasoning, trying to stall the cases, said a person close to the development. The Sandeep Jajodia-promoted Monnet Ispat has been in losses for the past three years, primarily on account of a slowdown in the steel sector. In , its losses jumped to Rs 2,132 crore, eroding its net worth, which stood at minus Rs 1,602 crore. The losses stood at Rs 381 crore in the quarter ended June 30, Under the Insolvency and Bankruptcy Code, once a lender or any other aggrieved party files a petition which is accepted by the NCLT, court-approved, plaintiff-appointed insolvency professionals (IPs) take over the management. The IPs try to revive the company over the next 180 days, extendable by another 90 days. If a resolution is not reached, the company is deemed insolvent, triggering liquidation. Creditors have the first charge on assets. Empowered by the Banking Regulation (Amendment) Ordinance, the RBI constituted an internal advisory committee (IAC), which after its first meeting on June 12, agreed to focus on large stressed accounts and took for consideration those accounts which were classified partly or wholly as nonperforming from among the top 500 exposures in the banking system. The IAC recommended for insolvency reference all accounts with debt greater than Rs 5,000 crore, 60 per cent or more of which had been classified as non-performing by banks as of March 31, Under the recommended criterion, 12 accounts totalling about 25 per cent of the current gross NPAs of the banking system would qualify for immediate reference under IBC, the RBI stated on June 13. Page 9 of 22

10 SOURCE: BLOOMBERG DATE: RBI Asked To Submit Supporting Documents For Insolvency Directive The Gujarat High Court, on Thursday, asked the Reserve Bank of India to submit documents supporting its June 13 directive to refer 12 large corporate accounts for immediate insolvency and bankruptcy proceedings. The court issued the direction while it was hearing a petition by Essar Steel Ltd. challenging the case filed against it by State Bank of India Ltd. and Standard Chartered Bank at the National Company Law Tribunal (NCLT) in response to RBI s directive. The court also adjourned the matter till Friday. The same bench had a week ago directed RBI to delete from its June 13 circular, a line that asked NCLT to hear the insolvency cases on priority. RBI amended its circular on July 9. In its petition filed in the Gujarat High Court on July 4, the Ruia-family owned, privately held company has sought to challenge the RBI s decision, the insolvency proceedings initiated by SBI (consortium lead) and Standard Chartered Bank and the failure of the consortium of banks to continue the implementation of the revival package approved by the board of the petitioner and approved in principle by the bankers. Selection Criteria Random, Alleges Essar Steel On Thursday, the high court heard arguments from lawyers representing Essar Steel and all three respondents - RBI, SBI and Standard Chartered Bank. Essar Steel argued that it was not given adequate opportunity to present its position before the insolvency case was filed at the NCLT. At the time, lenders were already discussing a restructuring plan approved by the company s board, it said. The regulator s decision to select Essar Steel to undergo insolvency proceedings was random and detrimental to its interests, the company s counsel argued before the Gujarat High Court. Essar Steel sought six months to implement its restructuring plan. Essar Misguiding Court, SBI And RBI Argue Lawyers representing SBI and RBI argued that the company was misguiding the court, adding that Essar Steel had been informed before the insolvency case was filed. High ranking officials at Essar Steel met with SBI officials on June 17, the lender said before the court. SBI filed the case at the NCLT on July 5. Page 10 of 22

11 In a statement on its website on June 13, the regulator had said that an independent advisory committee (IAC) had used common criteria to select 12 large corporate accounts for immediate action under the insolvency and bankruptcy code. The criteria included choosing accounts where the total banking sector exposure was at least Rs 5,000 crore. Of the cases chosen, the ones where at least 60 percent of the total exposure had turned NPA as on March 31, 2016, were shortlisted. These 12 accounts represented a fourth of the total gross NPAs of the banking sector, the regulator had noted in its statement. Page 11 of 22

12 SOURCE: BUSINESS LINE DATE: JSW Energy's acquisition of Jaiprakash Power Bina plant deferred till Dec The deal inked in 2015 between JSW Energy Ltd and Jaiprakash Power Ventures Limited (JPVL) for 500 megawatt (MW) Bina thermal power plant in Madhya Pradesh has been postponed till December 31, 2017 from an earlier set deadline of May 31, 2017, JSW Energy said in its annual report. The enterprise value of the deal was estimated at Rs 2,700 crore. The acquisition process is stalled due to SDR/debt restructuring of JPVL as its lenders are yet to give their green light to the deal. Both companies have agreed to extend the long stop date of the Bina acquisition till December 31. Tamnar plant buy on track Another deal for acquiring 1,000 MW thermal power plant in Tamnar, Chhattisgarh from debt-ridden Jindal Steel & Power Ltd (JSPL) that two brothers-billionaires Sajjan Jindal, Chairman and MD of JSW Energy, and Naveen Jindal, Chairman of JSPL, penned in 2016, is on track and is expected to be completed before the long stop date of June 30, 2018, the report said. For the Tamnar asset, Sajjan Jindal s JSW Energy has paid an interest bearing advance of about Rs 373 crore to JSPL as on March 31, 2017 against the shareholder approved limit of Rs 500 crore, the company said. The total cost of acquisition was estimated by JSW Energy at around Rs 6,500 plus crore. Financing expansion JSW Energy considered inorganic growth as one of the ways to getting closer to its target of achieving 10,000 MW capacity. The company currently operates 4,531 MW of power generation capacity with 3,140 MW being thermal and 1,391 MW hydro power. At the annual general meeting held in Mumbai on Thursday, the company board got approval from shareholders to raise up to Rs 5,000 crore through subscribing to secured and unsecured, redeemable non-convertible debentures, in one or more tranches, and up to Rs 7,500 crore via equity options. Additional long-tern resources to both meet its capex needs as well as refinance debt might be raised by issue of masala bonds of up to $75 million. Last fiscal, JSW Energy managed to slightly reduce the leverage arriving at net debt to equity ratio to 1.29 compared to 1.49 in the previous fiscal. The consolidated net debt as on March 31 stood at Rs 13,383 crore. According to Sajjan Jindal, the company will continue to be on the lookout for opportunities to invest wisely and build an enviable portfolio of power assets. Given the stress in the power sector, we are anticipating consolidation in the domestic space, which will offer us good prospects for investing for the future. We are also evaluating various opportunities involving next generation technologies which are going to be disruptive in nature in the energy space, he said addressing the AGM. Page 12 of 22

13 Bad year During FY , we saw a continuation of the trend of poor power demand, translating into weak merchant offtake and lower tariffs. This got compounded due to increasing prices of imported coal, thereby impacting our standalone business, Jindal admitted. JSW Energy, fourth largest private power generation company in India, reported a sharp fall of around 92 per cent in its consolidated net profit for the March quarter standing at Rs 24 crore as compared to Rs 296 crore of net profit in the same period of last fiscal. On annual basis, the standalone total revenue for FY17 fell by 30 per cent to Rs 4, crore as against Rs6, crore in FY16 while standalone profit for 2017 fiscal fell by per cent from Rs 1, crore in FY16 to Rs crore.consolidated revenue stood at Rs 8, crore in FY17 registering 15.7 per cent decrease from Fy16 while consolidated profit for 2017 fiscal decreased by 56.5 per cent to Rs crore from Rs 1, crore in FY16. JSW Energy was among several power utilities in India that, according to Morgan Stanley recent report, will fell large disruption brought by renewable energy. As around 30 per cent of company s capacity is merchant, it is likely to face tariff pressure from renewables, Morgan Stanley noted while reiterating its Underweight rating on JSW Energy. Page 13 of 22

14 SOURCE: ECONOMIC TIMES DATE: Nicco Corporation gets 90 days more for debt resolution The National Company Law Tribunal has given a 90-day lifeline to debt-ridden Nicco Corporation, making it the first firm to get more time for debt resolution beyond the initial 180 days. Resolution professional for Nicco, Kunal Banerjee, confirmed the development. The committee of creditors represented by State Bank of India, which has majority exposure, and others such as Allahabad Bank and Canara Bank was in favour of the extension of the deadline and has told Nicco to rework its resolution plan. Nicco was one of the first few companies to begin debt resolution after the introduction of the Insolvency and Bankruptcy Code (IBC) in 2016, which replaced the previous overlapping laws and provided a time-bound framework to complete insolvency resolution within 180 days. The rule permits a single extension of this deadline up to three months if lenders agree. In case a resolution plan is not in place even after 270 days, lenders have the mandate to initiate liquidation procedure to recover dues. "We are the first company to move NCLT seeking a resolution," Rajive Kaul, a key promoter of Nicco Corporation, told ET. ICICI Bank's move against speciality steelmaker Innoventive Industries was the first case listed by Insolvency and Bankruptcy Board of India, but the process was delayed as the company moved courts to stall the process. It will complete the first 180 days of resolution proceedings on July 16. Nicco was the second in the list of 123 cases approved by NCLT, but the first one initiated by the company itself. The firm, once a specialised cable maker, had proposed to restructure the debt by selling part of its noncore assets. It had sought fresh working-capital support from lenders to resume operations. The committee of creditors has suggested some changes in the resolution plan. Page 14 of 22

15 SOURCE: BUSINESS STANDARD DATE: NCLT adjourns insolvency case against Deccan Chronicle Holdings to July 19 Hyderabad-bench of the National Company Law Tribunal (NCLT) on Thursday heard the arguments in a petition seeking the initiation of insolvency proceedings against Deccan Chronicle Holdings (DCHL). The bench has adjourned the matter, pending the issuance of orders to July 19. Last week, the NCLT had admitted the petition of Canara Bank, one of the financial creditors of the debt-laden company, filed under section 7 of the Insolvency and Bankruptcy Code (IBC), The bank is seeking orders for appointment of an Interim Resolution Professional (IRP) and an imposition of a moratorium, required to initiate the insolvency process. The bench had admitted the petition while rejecting the corporate debtor's plea for dismissal of the petition on the grounds that the petitioner had established a prima facie case in seeking action under IBC,2016 pertains to an outstanding debt of Rs crore claimed by the creditor. The bench did not agree with the argument of the respondent's counsel that it cannot entertain this petition as there was a winding up case pending against the company in Hyderabad high court. The bench maintained that there was a non-obstante clause in the IBC 2016, which has an over-riding effect over an existing statute or statutes in force. Speaking to Business Standard, Canara Bank's counsel Deepak Bhattacharjee said the NCLT bench has heard the arguments from both the sides and adjourned the matter for the issuance of orders. According to Bhattacharjee, following the admission of the insolvency petition, the previous applications such as the one filed by Srei Infra Finance seeking the appointment of new directors on the board of DCHL will become infructuous. The media company, which owns Deccan Chronicle newspaper, had admitted that it had total debt of around Rs 4,000 crore way back in Lenders had approached various fora to recover loans from the company, though very few had succeeded as the company had allegedly mortgaged the same set of properties multiple times. Page 15 of 22

16 SOURCE: ECONOMIC TIMES DATE: SBI not in favour of JSW buying stake in Monnet Ispat India s largest lender State Bank of India is not in favour of a JSW Steel proposal in its current form to buy a controlling stake in debt-laden steelmaker Monnet Ispat, the bank informed the Mumbai bench of the National Company Law Tribunal (NCLT) on Thursday. The counsel for Monnet Ispat told the tribunal that the company had a buyer for its assets and needed more time to finalise the proposal and that proceedings in the tribunal may jeopardise its stake sale plan. The presiding judge, BSV Prakash Kumar, asked the bank for clarification regarding the total dues of the steelmaker, following which the NCLT will again hear the case on July 17. Monnet Ispat owes banks over Rs 12,000 crore. It is among the 12 companies the Reserve Bank of India has shortlisted for insolvency proceedings. The company has not been able to repay loans as its earnings have dipped due to unfavourable supply and demand in the steel industry. It has been incurring losses for 12 consecutive quarters. For the quarter ended June 30, it reported a loss of Rs crore and its outstanding liabilities stood at a little over Rs 10,500 crore. The lenders formed a joint lenders forum (JLF) in 2014 and invoked provisions of strategic debt restructuring (SDR) against the company in SBI and its associates have made a claim of Rs 2,240 crore, of which Rs 1,539 crore is overdue. The timeline fixed to find a buyer for the company was February Page 16 of 22

17 SOURCE: ECONOMIC TIMES DATE: Indian coal demand to remain tepid: India-Ratings India Ratings expects domestic coal consumption growth in India to remain tepid on account of subdued demand from thermal power plants, with an expectation of power plant capacity utilisation remaining sub-65% in the medium term. It has estimated that prices for the benchmark Newcastle coal with 5,500 calories of energy value will hover between $50 per tonne and $60 per tonne between 2018 and India Ratings feels that government s policies on large seaborne trade and persistent substitution to renewable energy are likely to have a significant influence on coal prices. However, India s domestic coal production is all set to increase on account of government efforts to reduce imports. The higher target is partly to be met by production in coal blocks fraught with clearances issues. Given domestic coal availability is likely to increase, thermal coal imports are likely to decline by million tonnes annually over the next two-three years. This would affect global seaborne trade, it said in a report. Freight costs and volume-based taxes make an economic case for steady demand for high-quality coal. For instance, India doubling clean energy cess to Rs 400 per tonne reduces the economic value of lowquality coal. Ind-Ra believes investment in new coal projects is likely to remain subdued globally due to gloomy long-term demand prospects. Many top global suppliers may not invest in raising output, creating a strong floor for prices. China has committed to cut 800 million tonnes of capacity over ; it had cut about 250 million tonnes as of October Although coking coal prices are likely to weaken in 2018 due to a production recovery in Australia and China, the average price for the full year may continue to remain high compared with that for first half of 2017 due to continued supply-side constraints and low inventory levels. However, with the restart of idle sites and new capacity ramp-ups, supply from top producer countries could improve in Ind-Ra estimates medium-term price of coking coal at about $ 100 per tonne. Reinstatement of lower mining days and higher-than-expected capacity curtailment by China, increased regulatory constraints on exports, major upward revision in royalties or taxes, any force majeure events constraining global mining activities or global supply movement may pose an upside risk to prices. Higher-than-expected volume ramp-ups by large global miners and proliferation of renewables, major downward revision in royalties or taxes, and major decline in global economic activity may pose a downside risk to assumed prices. Page 17 of 22

18 SOURCE: LIVEMINT DATE: Order to banks to speed up loan recovery within our powers: RBI The Reserve Bank of India (RBI) on Thursday said its 13 June directive to banks to speed up their badloan recovery was well within its powers, and that its classification of sticky assets could not be challenged. RBI lawyer Darius Khambata said this in the Gujarat high court during a hearing on Essar Steel Ltd s petition challenging the directive. The company, in its petition before the court, said it had initiated an effort with creditors to restructure its debt and was on the path of recovery when the central bank came up with the directive. RBI directed banks to refer a dozen defaulters including Essar Steel to the National Company Law Tribunal (NCLT) for speedy resolution under the Insolvency and Bankruptcy Code (IBC). The debtors made up a quarter of the Rs10 trillion of stressed assets clogging up the Indian banking system. Justice S.G. Shah, before whom the case is being heard, observed that neither the petitioner nor the respondents had so far submitted the original directive of the RBI or the supporting documents that were used as the basis while issuing the 13 June directive. RBI s criterion was that the total banking exposure of a company should be at least Rs5,000 crore and 60% of this should have turned non-performing by March Essar Steel s counsel Mihir Thakore, challenging this criteria, said the company should have been included in another category of 488 defaulters that were given six months to restructure bad debt or else be referred to the NCLT. Thakore said in his submission that RBI s directive had violated Article 14 of the Indian Constitution, which provides for equality before the law and equal protection. Apart from RBI, State Bank of India and Standard Chartered Bank are also respondents in the petition that has been filed by Essar Steel. RBI s Khambata as well as SBI s lawyers accused Essar Steel of suppressing facts before the court. Essar Steel owed lenders some Rs45,000 crore in total of which Rs31,671 crore had turned into an NPA as of 31 March Khambata said SBI had written to Essar Steel in February 2016, declaring its account an NPA. He claimed there was enough evidence to show Essar Steel was informed of insolvency proceedings to be initiated against it and had even agreed to go to the NCLT. Even if we classify Essar Steel in the second category which they are seeking, there is no way the RBI can stop State Bank of India or Standard Chartered to approach NCLT, said Khambata. He said the IBC overrides any previous contradictory notification, which in this case was the ongoing corporate debt restructuring process. Page 18 of 22

19 Also, there is enough on records to show that Essar s debt restructuring plan was not successful, Khambata added. He said if Essar had a revival plan, it could present it before the NCLT, which is a judicial body, where it would get a fair chance for representation. SBI s counsel told the court that under the IBC, any operational creditor who has lent Rs1 lakh or more can approach the NCLT. Essar Steel s counsel Thakore argued that negotiations had been under way with SBI, which leads a consortium of banks formed under Joint Lenders Forum (JLF), for debt restructuring when on 15 June, the RBI directed SBI to initiate bankruptcy proceedings against the company. Thakore said there was no evidence to show the lenders forum had rejected the company s restructuring plans. Standard Chartered s counsel Kamal Trivedi told the court that Essar Steel s Mauritius-based subsidiary had borrowed about Rs3,400 crore from the bank, for which the company was a guarantor. He said Essar Steel had in a communication dated 4 January informed Standard Chartered that it would repay the debt after 25 years by paying 1% interest. We would not wait for 25 years for their offer of 1% interest. We informed Essar Steel on 24 January that we would approach NCLT, Trivedi told the court. Page 19 of 22

20 SOURCE: LIVEMINT DATE: RBI s oversight committee clears SBI s debt resolution plan for Supreme Infrastructure The Reserve Bank of India s oversight committee has approved a debt restructuring package for Supreme Infrastructure India Ltd under the central bank s scheme for sustainable structuring of stressed assets (S4A). Under S4A, a defaulter s debt is classified into sustainable and unsustainable parts. The former is left alone to perform or be restructured if necessary, while the unsustainable debt would be converted into equity or equity-like, long-dated securities and redeemed at a later date. In case of Supreme Infrastructure, out of the total debt of Rs2,401 crore, about Rs1, crore is considered as sustainable, the company informed stock exchanges on Thursday. The remaining debt of around Rs1,130 crore will be converted into optionally convertible debentures (OCD). These debentures, with a five-year tenor, can be converted into equity shares by the lenders in case the company defaults on repayment of debt under this portion. Repayment of OCDs will be made in seven equal instalments starting with the end of ninth fiscal year from the date of issuance of these instruments. The resolution plan does not involve change of management. However, promoters will transfer 4.61 million shares representing a 17.95% stake to the lenders. At the end of March, promoters held a 37.78% stake in Supreme Infrastructure. Following the oversight panel s approval, the company will seek a final approval from individual lenders in the consortium, as well as from its shareholders. State Bank of India, ICICI Bank Ltd, Axis Bank Ltd, Union Bank of India, Punjab National Bank, Indian Overseas Bank, and SREI Infrastructure Finance Ltd, among others, are lenders to the company. In June, the central bank added three members to the oversight committee, taking the total strength of the panel to five. The resolution plan, under S4A, where the exposure is more than Rs500 crore requires approval of the panel. In a 13 June circular, RBI directed banks to file insolvency proceedings against 12 large borrowers. For others, the central bank asked banks to finalise a resolution plan within six months. Page 20 of 22

21 SOURCE: FINANCIAL EXPRESS DATE: Aggregate retail loans by banks make up under 10 pct of GDP; 55 pct in South Korea, 52 pct in Taiwan The Indian economy witnessed a decline in credit to the industrial sector from 12.8% in 2014 to 2.7% in 2016, on account of economic slowdown due to supply-side constraints. The poor growth of credit to this sector continued in FY17 as well. On the contrary, credit to retail sector has witnessed a rising trend in the last few years from 12.5% in 2014 to 19.36% in In 2017, this trend continued. This is mainly because, corporate loans are directly affected by industrial slowdown and policy level structural issues, the retail credit has not been severely hit. Further, lending to retail has some comparative advantage vis-à-vis corporate lending. These are (i) higher yield of retail loan as compared to corporate loans (ii) distribution of risk among large number of retail customers (iii) pre-qualified data bank for multi product sales including low cost deposits (iv) limited value at risk in view of lower size of the retail loan as compared with corporate loan, leading to lower quantum of NPAs and stressed assets in general. Though retail lending has some advantages, there are challenges too. The major challenge is customer retention. Due to ample source of easy finance availability, retail customers are in general very vulnerable to shift. Thus, maintaining loyalty of customers is considered to be the most critical challenge. As per a research study by Reicheld and Sasser in the Harvard Business Review, a mere 5% increase in customer retention can increase profitability by 35% in the banking business, 50% in insurance and brokerage, and 125% in consumer credit-card market. Thus, banks need to put more emphasis on retaining their customers in order to increase profitability. As retention of customer is key to success in retail, banks need to adopt some exclusive strategies: Customer segmentation: Banks need to first bifurcate all the retail customers into two segments massretail banking and class-retail banking. The mass retail banking is the stage in which bank provides standardised banking products and services to its customers. While satisfying these types of customers by offering basic services at comparatively lower prices with minimum customer complaints, banks can generate stable flow of income. However, in order to maximise income, banks need to give more attention on its class-retail banking customers, by focusing solely all its niche customers though various innovative products and personalised services. Banks need to design and innovate financial products which are easy to understand and simultaneously meet the financial goal of its target customers. Through the data analytics, banks need to capture all their target customers consumption pattern based on consumer behavior analysis. Accordingly, they need to device some lifecycle-lifestyle product approach, which needs to be offered at various stages of customer life cycle. These measures will keep customer engaged and always loyal to the bank. Cost-effective delivery mechanism: As retail is a volume game, where banks need to serve a large number of small value customer on pan-india basis, a cost-effective delivery mechanism needs to be developed. Though e-banking has already picked up in India, it is pertinent to note that amongst all the e-channels, mobile banking is the most cost-effective, fastest and widely covered delivery channel. Page 21 of 22

22 Banks need to constantly renovate various customer-friendly mobile applications for fast, cheap and convenient mode of delivery to their customers. Robust risk management system: As retail banking is mainly transaction and volume oriented, where banks need to deal with huge number of customers on daily basis, retail banking would be obviously prone to operational risk in the form of transaction error, accounting error, processing error, misselling, AML, business disruption and system failure, etc, to retain customer loyalty, banks need to improve their operational efficiency by mitigating operational risk through robust risk management system and processes where customer grievances have to be resolved through fast track customer grievances mechanism system. Apart from this, in order to select the target customers, banks need to customise their own scoring model, where more weightage should be given on primary information about the borrower, viz, past-track record, sources and nature of income, frequency of purchases, type of purchases, loan default history (if any), nature of liability vis-a-vis assets and degree of cash, collateral security offered for the loan. Though retail lending has increased significantly in the past, however, the future of this sector still looks brighter considering the factors like (i) increasing per capita income (ii) growing consumerism on account of higher marginal propensity to consume (iii) demographic changes in favour of younger population (around 70% population in under 35 years of age) leading to more demand for retail loan and (iv) facilitating measures such as fiscal incentives for housing, easy access to personal loans, flexible repayment schedule of loan, increasing number of shopping malls, retail outlets and widespread eye catching innovative advertising. It is interesting to note that still aggregate retail loans constitute less than 10% of GDP in India, compared to nearly 35% in other Asian economies such as South Korea (55%), Taiwan (52%), Malaysia (33%) and Thailand (18%). There is huge untapped potential of retail lending in India. Further, the latest report also says that the outlook for has been brightened due to various factors like accelerated pace of re-monetisation and reduction of lending rates by banks, improvement in consumer confidence index. All these will have a favourable impact on disposable income on India s mass population, which will boost consumption expenditure and thereby further scope for retail lending for banks. Though opportunities are ample, the competition is also stiff especially in Tier 1 locations where concentrations of more banks are there. THANK YOU! Page 22 of 22