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RBI To Clear Liquidation of a Clutch of Companies. This Is How Stocks on Market Reacted

Stocks of over-leveraged firms tumbled on the bourses on Wednesday with investors spooked by the Reserve Bank of India’s (RBI) decision to allow a clutch of a companies to be liquidated, if no other solution is found.

The RBI said on Tuesday, 13th June 2017 it had identified 12 stressed accounts that banks must resolve with the help of the Insolvency and Bankruptcy Code (IBC). The accounts identified by the RBI are those to which lenders have an exposure of over Rs 5,000 crore and where more than 60% of the amount has been classified as non-performing.

Merely referring the cases under IBC may not imply immediate liquidation, but if creditors are unable to come up with an alternative solution, liquidation will take place.

In addition, banks would need to come up with plans to resolve another set of stressed accounts in the next six months. The total quantum of non-performing assets (NPAs) is estimated at close to Rs 7.7 lakh crore, nudging 10% of total loans. The total quantum of impaired loans is estimated at Rs 12 lakh crore or nearly 15% of total loans.

“Investors were probably not expecting that some of these companies may be wound down so soon,” said an analyst.

Among the most troubled sectors, bankers say, are steel, power, telecom and textiles. On Wednesday bankers met the government to discuss the troubles in the telecom industry. While steel companies have fared relatively better in Q4FY17, swinging from a loss to a profit, many of them nonetheless have large accumulated losses.

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