India’s banks could see a $7.6 billion earnings boost this month as the country’s bankruptcy court quickened the process in clearing a backlog of large cases.
India's largest lenders are set to benefit from the recovery process from four failed companies - Essar Steel India, Prayagraj Power Generation Co., Ruchi Soya Industries and RattanIndia Power, local newspapers reported. This is due to an acceleration in clearing the huge cases, which should complete in December.
The total proceeds from the bankruptcy cases should sum up to 540 billion rupees ($7.6 billion), according to Karthik Srinivasan, group head of financial sector at ICRA Ratings, the local arm for Moody’s Investors Service. The banks should be able to use a large part of it «to step up provisioning as bad loans continue to rise,» said Srinivasan, who was quoted in «Bloomberg»(behind paywall).
Slow Progress
The largest beneficiaries of the recoveries are State Bank of India, IDBI Bank, Bank of India, Canara Bank and Bank of Baroda, the media reported. Having struggled under a pile of bad loans due to India's shadow banking crisis and a slowing economy, the gains are a huge relief for the lenders. Many have expected to set aside additional provisions in their earnings reports for this quarter.
While the bankruptcy court was set up in 2016 to deal with the bad loan crisis, India's progress has been slow - only 15 percent of cases admitted to the court had produced a resolution plan as of September, according to data published by the insolvency board.
Green Light
The Supreme Court last month gave clearance for ArcelorMittal SA’s $5.9 billion takeover of Essar Steel, paving the way for faster approvals in similar cases. The court allowed Arcelor to pay creditors and scrapped a bankruptcy appellate tribunal’s order that gave secured and unsecured lenders equal rights over the proceeds.
Banks are expected to get back 415 billion rupees from Essar, having received a 54 billion rupees payment from the Prayagraj bankruptcy on Friday. Another 43.5 billion rupees is due from Ruchi Soya on Monday and 27 billion rupees from RattanIndia later this week, «Bloomberg» reported.
