Inter-creditor agreement is crucial for bad loan resolution, says Union Bank of India

The Reserve Bank of India's (RBI) new circular on bad loans is a positive move but before that inter-creditor agreement has to be done, which will make it easier to resolve any account, said Rajkiran Rai, managing director and CEO of Union Bank of India. RBI eased the ‘one-day default’ rule and replaced it with a 30-day grace period as it has unveiled new norms for resolution of stressed assets.

“It is a good move but before that we need to get that inter-creditor agreement done because the inter-creditor agreement has to be signed by 100 percent of the creditors. So once that is done, then it is much easier to resolve any account because then the 75 percent by value and 60 percent by number will come in. So getting inter-creditor agreement will be very crucial in any resolution plan,” he said.

Sharing his opinion on accelerated provisioning on non-performing accounts (NPAs), he added, “The accelerated provisions will come only in Q4 because we have these 30-day plus 180-days, so the accelerated provision, if you are not able to resolve, will only come in Q4 but before that when we look at these accounts, if you are not getting into a resolution plan, I think banks will be better off taking all these accounts to the National Company Law Tribunal (NCLT) quickly because we are handling these accounts since Q4 of 2017 after that Feb12 circular so we are pretty aware of every account now. So we will be able to take a better call now.”

In terms of insolvency and bankruptcy code (IBC), Rai said, “IBC process is continuously getting strengthened and here is a very clear guideline. There are some accounts which may take much more time in resolution but then we see value in those accounts. So what RBI has done has permitted us to take more time to resolve an account even beyond a year but then we need to make higher provisions. So these accounts – we are very confident that the resolution will work but are taking higher times so there is a leeway with the banks to give more time to accounts.”

When asked about bank’s exposure to DHFL, he further mentioned, “We generally don’t make account-wise comments but since the information is in the public domain, the company is going through some short-term liquidity issues. If they are resolved – we are monitoring the cash flows of the company, this month they had a certain shortage in the cash flows, other two-three months, if they are able to take care of the cash flows, we may have a strategic investor. If that happens, probably a management change may happen. Then we will have a solution otherwise it will take a normal course of resolution.”