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Not everything is going well at the National Company Law Tribunal (NCLT). While the Central Government applied the Insolvency and Bankruptcy Code after forming the National Company Law Tribunal for companies which were unable to pay off bank loans, there seems to be a catch.
These companies who could not repay bank loans worth thousands of crores will now be taken over by new owners after bidding. These companies have not been paying almost all or a large part of interest and principal due to the banks.
Since there is no requirement of servicing debt during the time these companies were under the moratorium, few of the operating companies have saved cash which is lying in the bank accounts or fixed deposits. At the same time, these companies have seen a significant increase in inventory during this period.
This inventory and cash accrued with the company till the transfer of ownership should technically belong to banks. However, it appears that the new acquirer is getting this inventory and cash for “free” at the cost of banks. It also remains unclear as to who will bear the cost of interest which has piled up during the moratorium period.
Is the 'haircut' by banks much bigger than what is being talked about? Why are the Banks and RBI silent about this huge additional loss of public money? Doesn’t the public deserve to know the finer details of the loss caused to their banks?
Market experts suggest that while the government had begun the treatment of bankrupt companies via IBC on the lines of America’s chapter-11, questions remain on the payment of interest on the loans accrued during the moratorium.
If Tata Group’s bid of Rs 24500 crore rupees, as reported by the media goes through for Bhushan Steel which is under a debt of 57160 crores, it means that banks not only lose Rs 32660 crores upfront but may also lose some interest amount they would have got on the loan.
For example, Bhushan Steel has been operating even during the moratorium period. As per market experts, steel sector has recovered significantly during the last few months, because of which Bhushan Steel would have earned significant cash that would be lying in the company’s bank account or fixed deposits. Market experts also suggest that company is also sitting on huge inventory. The total value of the cash and inventory could be around thousand crores according to industry experts. And this cash and inventory are likely to go to the acquirer for free at the cost of additional loss to the banks.
We have sent questions to various lenders, IRP and even RBI to clarify the position but at the time of writing this article, none of them have responded.