Resolution of twin balance sheet problem to take 6-9 months, says Assocham

It may take at least three quarters before the twin balance sheet problem -- of banks saddled with bad loans and highly leveraged corporates -- gets resolved, industry body Assocham said today. It also said the process of resolution of the companies under Insolvency and Bankruptcy Code (IBC) reference would gather pace in the coming months. Twin balance sheet problem refers to the stress on balance sheets of banks due to non-performing assets (NPAs) or bad loans on the one hand, and heavily indebted corporates on the other.

"Our own assessment is that it would take another six to nine months before the banks see revival of confidence to lend afresh as they would then see reasonable amount of their NPAs get unlocked through a resolution. "Besides, with sales growth expected to witness a revival, the ability to service debt would improve considerably," Assocham said in a statement. Assocham Secretary General D S Rawat urged the RBI to relax the norms proposed in its February circular on the revised framework for resolution of stressed assets, claiming that these are quite harsh both on the bank as also the borrowers.

"These norms would aggravate rather than solve the problem of NPAs; at this point of time, both the lenders and borrowers need to be given confidence and policy support. As long as there is a willingness to resolve the problem, all support must be extended. "As is evident from the stressed assets in steel and cement, there is a huge rush for acquiring the same. This shows there is a tremendous inherent value proposition and these assets can be turned into first class performing assets within a few years," he said.

In the coming months, the IBC process would see some refinement, based on the experience gained so far even as the capacity to handle the cases would get built up in an institutionalised manner, he said. "Be it consortium of creditors, debtors, insolvency professionals, company law tribunals or even higher courts, they would all gain useful experience and would have some successful precedents to follow, going forward," he added.

According to Assocham, there is also a growing realisation within India Inc that in case the projects are stuck for some reasons, there is a legitimate exit route available before the creditors and promoters. "The IBC system needs to be supported and made the best from the global standards with active involvement of the government, regulators, lenders, borrowers and the judiciary," it said.

Post the clean-up, the entire corporate governance structure should see a transformation, raising the standards of internal controls, external oversight, disclosure and authority of the boards, it said.