Banks will receive a mix of upfront cash and non-convertible debentures (NCDs) due in seven years to complete what is billed as the largest recovery of distressed loans this fiscal year.
The cash component, which should reach the banks concerned this week, will help them to resume provisions on these advances, which could increase their results in the second quarter.
“Piramal will make the payment early on Tuesday,” said a person familiar with the cast.
Bet on it
- SBI, BoI, India among the main beneficiaries
- About Rs 17,400 cr likely to be divided between creditors by September 30
- The recovery is expected to be one of the most important for banks in this fiscal year
- A sum may be set aside until the NHB plea on the priority charge is settled in NCLAT
Recovery includes 20% cash, 23% MNT
“The distribution – from fixed deposit holders to banks – will be complete by September 30. About 20% of the clawback is in cash, which will go to lenders to be accounted for this quarter,” the person close to the distribution said. .
Financial creditors led by SBI had admitted claims of Rs 87,000 crore. From that, SBI alone had an exposure of Rs 7,267 crore to the distressed house financier. Bank of India (BoI) had claims of Rs 4,125 crore and Union Bank of India (UBI) Rs 3,605 crore.
Piramal’s total auction, at Rs 37,400 crore, is around 43% payback on admitted claims. This recovery is further divided into 20% in cash and 23% via NTMs.
By these calculations, SBI will earn Rs 1,453 crore in collections, which will be written back to provisions this quarter. BoI will earn Rs 825 crore and UBI Rs 721 crore. These amounts will go directly into their profits this quarter.
“These reversals will be accounted for this quarter at 100%. Banks will gain, assuming they do not have to predict further slippages during the quarter,” said an executive quoted above.
Cue point resolution
In June, the Mumbai bench of the National Company Law Tribunal (NCLT) approved PCHF’s resolution plan for DHFL six months after the group was declared the preferred bidder, obtaining 94% of the vote from creditors.
DHFL’s resolution is a milestone for the five-year-old Insolvency and Bankruptcy Code being the first resolution of a financial company’s debt under this collection mechanism.