Indian banks need to provide a minimum of an additional INR 180 billion ($2.79 billion) towards the 12 accounts identified by the Reserve Bank of India (RBI) for bankruptcy proceedings, according to India Ratings & Research (Ind-Ra). The weighted average provisioning of 45% towards the iron and steel exposure continues to be the highest across all sectors.

This is “…given the deep entrenchment of stress in the sector, low capacity utilisation and high expected ultimate haircuts,” Ind-Ra says in a note sent to Kallanish.

The weighted average provisioning for the infrastructure sector exposure is 36%. “A going concern approach towards resolution could fetch a more favourable value in comparison to a liquidation approach given the nature of the assets in the […infrastructure] sector and the fact that many of the projects in the sector are under stress on account of cash flow mismatches and project overruns,” Ind-Ra observes.

India changed in May banking laws to empower the RBI to tackle the country's bad debt issue, allowing the RBI for the first time to direct lenders to force defaulters into insolvency courts. The RBI asked last month lenders to start insolvency proceedings against 12 companies, including Bhushan and Essar Steel, to help cut down on over $150 billion in stressed assets in the banking system.

Essar Steel had its appeal to suspend bankruptcy proceedings dismissed this week by the Gujarat High Court (see Kallanish 18 July). The steelmaker now plans to present its case to the National Company Law Tribunal (NCLT)