Finmin tells PSBs to go with top bidder for stressed assets

NEW DELHI: The finance ministry has directed state-run lenders to go with the highest bidder while deciding on resolution plans for big stressed assets under the Insolvency and Bankruptcy Code (IBC) to maximise their recovery.

The government wants to ensure that the haircut that banks take on their loans is minimal as more cases of big non-performing loans reach resolution under IBC, top government sources told ET. The resolution plans often have multiple offers that include equity infusion, payments to banks and some long-term pay-off components.

The direction to go with the highest bidder, even if a large industrial group is in the fray, will also enable banks to arrive at a speedy and least controversial decision in respect of resolution plans as any evaluation based on multiple criteria could become subjective, officials said. Banks have taken a big cut in most of the recent cases of nonperforming asset resolutions under Insolvency and Bankruptcy Code.

Officials, however, said some the headline amount also included penal interest for delayed payment. If just the loan and interest due is taken, the shortfall in what banks have realised in some cases is not that big, they said. IBC does not detail how the resolution plans are to be evaluated. That is left to the committee of creditors. ET had reported earlier that bankers had decided to enter into negotiations only with the highest bidder.

The finance ministry directive will now end all ambiguity. A clarity from the government in this respect is also expected to lift the bidding amount or what banks get for the assets as the bidders will know that there will only be a quantitative evaluation based on the bids received. A high-level committee set up by the government is looking into the efficiency of the IBC and will make suggestions on improving IBC sometime this month.