Q&A Siby Antony, executive director, IDBI

'Rs 5,200cr stressed assets recovered'

Q&A Siby Antony, executive director, IDBI

Siby Antony, who started his three-decade long career with IDBI and has seen the transformation of IDBI from a develop-ment institution to a bank, wears three hats. Besides being the executive director of the IDBI, he is also executive trustee of the Stressed Assets Stabilisation Fund (SASF) and executive chairman of the empowered group Corporate Debt Restructuring (CDR). As he says, the development financing model the world over failed and it was more out of necessity that IDBI had to convert to a bank. In doing so, it had to tackle the legacy of NPAs and stressed assets. That is how the SASF came into being, and it is well onto achieving its target. Excerpts from an interview What was the background of the creation of Stressed Assets Stabilisation Fund? IDBI was the principal development financial institution mandated to develop backward areas and create new generation entrepreneurs. And it did a magnificent job nurturing groups like Nagarjuna, Reliance, Gujarat Ambuja — most of the core sector companies in steel and cement. We had over 3,500 corporate relationships at that time in addition to a large number of small and medium enterprises. After SIDBI and Exim Bank were hived off, IDBI still had the developmental functions including the role of supporting State Finance Corporations (SFCs) and State IDBIs. The paradigm shift of our economy from protected to globalised adversely impacted small and sub-optimal manufacturing companies in the short to medium term. A host of other economic factors also had its toll on many units. The entire banking system had relatively high NPA levels and IDBI was no different, especially because of its development activities. So, before conversion into a commercial bank, it was necessary to transfer the stressed legacy assets from its balance sheet. The SASF was created, as a GoI Trust in 2004 to deal with this issue. 631 NPA accounts with outstanding loans of Rs 9,000 crores were transferred to the SASF. The mandate of SASF is to recover the funds locked up in these assts. How will you recover Rs 9,000 crores in NPAs? We have 20 years to recover the money. After analysing 631 accounts, we found that 360 cases had less than Rs 10 crores debt each and were non-viable. We classified the assets into non-viable and potentially viable. Potentially viable units were relatively easy to resolve; we could restructure the debts, invite healthier units to take them over under the merger and acquisition route. Incidentally, the past two to three years have witnessed tremendous interest from private equity funds and special assets management funds to invest in stressed assets. The strategy for non-viable assets is to liquidate them and sell the assets or enter into one-time settlements with the promoters or company. What has been your experience in quantitative terms? We have settled 394 out of 631 cases involving Rs 5,200 crores. Of this, Rs 2,300 crores has already been received and the balance will be in in two to three years. There are 237 cases still left to be settled. I must say that the improvement in the economy and unprecedented rise in property prices have helped us a lot. For example, we were not getting buyers even for Rs 5 crores upto 2004 for a two-and-half- acre property in Chennai, but recently we could sell the same for Rs 31 crores. Why is the resolution process taking time? Would this deter private equity funds that are keen on taking over the stressed assets? Multiplicity of lenders is the main issue. Security available to each class of lenders like term lenders and working capital lenders are different. Then there are state level institutions like, SFCs and SIDCs. They do not have the concept of one-time settlement, where lenders have to make sacrifices. These lenders should understand that without some sacrifices, no sick company can be revived. Debt should de reduced to a level that is sustainable so that the industry can be revived. If you insist on the full payment all at once then you'll get nothing. Private equity funds, for instance, can come in a big way if debts are reduced to sustainable levels. Are not the large sacrifices a major hurdle? Yes, definitely. But not making them can only worsen the situation. In potentially viable cases, we should have some mechanism by which our losses could be recouped to an extent. I believe, taking equity stake in viable companies by converting loans to equity would be ideal. How is CDR different from other strategies of SASF? The CDR was instituted in 2003 by the RBI to deal with NPAs. It is an informal body which started out with 64 lender members and now there are 59. CDR mechanism is an effective system restructuring the debts of beleaguered corporates. All lenders come together and decide on the most acceptable and practical restructuring. If 75 per cent of the members by value and 60 per cent by number agree, the restructuring including early exit settlement is carried through. Steel majors like Jindal, Essar, Ispat, cement majors like India Cement, JK Lakshmi, etc owe their success partly to the CDR system.