SAMADHAN and The IBC

The recent SBI led SAMADHAN of over Rs 70,000cr of stressed assets in the power sector, makes interesting reading especially in view of the furor raised by the Power Utilities to the 12^th Feb 18 circular of the RBI. That circular gave powers to Banks, either singly or jointly to resolve the debts in a manner quite akin to the IBC code. Further for stressed assets in excess of Rs 2000cr it even set similar deadlines. Power Utilities had got a stay from the Supreme Court against this Circular.

..And here we have Rs 70,000cr covering seven accounts being settled, with three of the Companies handed over to one Group.

The “interesting” aspects for me are twofold:

The 12FEB18 Resolution Framework was clearly an attempt to make the Banks proactive, and resolve the debt problem early, instead of entering into the IBC mechanism at a subsequent stage.  A laudable objective, for if problems can be solved “within the family” why risk time and reputation facing a legal mechanism? Except, that the manner of resolution is nowhere as transparent as the one the IBC provides for. I am not sure whether the RBI Circular provides for advertisement to seek bids, or the Bank Managers and the debtors allowed striking deals on their own? I do not for a moment doubt the fearless independence and the integrity and sincerity of the Bankers to find the optimal solution in the best interests of the shareholders of the Bank. After all they need to get the deal vetted by one of the three Rating Agencies.  Absolutely! But then what if the losses (“haircuts” as the word goes) suffered by the Lenders from amongst the Public Sector Banks are then made up by the Government from the tax payers money? Would a certificate by one of the three Rating Agencies be an adequate clean chit? We are all aware of the performance of these noble entities.

Secondly, I am intrigued by the fact that four of the assets have been handed over to the A Group (in these days of codes, one is best playing the game!), which, a Parliamentary Committee Report had listed amongst 34 stressed power projects! That would never have passed the IBC!!!