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Firms facing bankruptcy for NPAs nosedive in Dalal Street
The Reserve Bank of India’s stern message to banks to initiate bankruptcy proceedings against 12 firms has led to massive crash in the share prices of some of these companies, which are likely to face insolvency proceedings under the Insolvency and Bankruptcy Code (IBC). According to estimates, these 12 companies account for nearly Rs 31 billion of Non-Performing Assets (NPAs) or bad loans.
As stocks tumbled and panicky shareholders rued their fate, the Prime Minister’s Office on Monday held a stocktaking meeting with senior officials of the Ministries of Finance and Corporate Affairs to review the progress in resolution of NPAs in the light of recent action taken by the RBI on stressed assets. The Prime Minister’s Additional Secretary PK Mishra had a review meeting on resolution of NPAs which have reached unacceptably high levels, sources said.
The banking sector is saddled with NPAs of over Rs 8-lakh crore, of which Rs 6-lakh crore is on the books of public sector banks (PSBs). Ministry of Corporate Affairs Secretary Tapan Ray, who also holds additional charge as Secretary, Department of Economic Affairs, and Financial Services Secretary Anjuly Chib Duggal were among the senior officials present at the meeting.
While the RBI is yet to disclose the names of the 12 companies, the share market seems to have identified them. The furious fall in their share prices showed that the market players and investors have accepted that the Government is serious about taking punitive action against them.
Leading the fall was Amtek Auto, a one-time darling of punters and investors. The company whose shares traded at Rs 250 three years ago on the same day, was locked in a 20 per cent lower circuit at Rs 23.40 on Monday. The company’s total debt is Rs 15,000 crore.
In the past, the company made several announcements that it would try to reduce its debt by selling its assets, but nothing has so far materialised. India’s top automakers are clients of this company.
Similarly, shares of Lanco Infratech slumped 20 per cent after the RBI directed its lead lender IDBI Bank to initiate insolvency proceedings for the company under the IBC. The stock plummeted 20 per cent to close at Rs 1.88, its lowest trading permissible limit for the day as also its 52-week low on the Bombay Stock Exchange. At the National Stock Exchange, the shares of the company tanked 19.14 per cent to end at Rs 1.90, its lower circuit limit.
“Lanco Infratech Limited (LITL)...Vide letter dated June 17, 2017, intimated under Regulation 30 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, that RBI directed IDBI Bank, the lead bank of LITL to initiate Corporate Insolvency Resolution Process for LITL under the Insolvency and Bankruptcy Code, 2016,” the company said.
Shares of Bhushan Steel, which is also reportedly facing action under the insolvency Act, plummeted by 17 per cent, closing at Rs 58. The company’s total debt stands at Rs 42,000 crore and its share traded at Rs 77 one week ago.
Another steelmaker, Electrosteel Steel, also faced the fury of the investors who offloaded their shares as if there was no tomorrow. The share prices hit the lower circuit and closed at Rs 4.05. The company’s debt stands at Rs 9,000 crore.
Alok Industries is also one of the 12 firms facing bankruptcy. It is expected that the RBI is likely to come out with more measures to rein in NPAs and share a possible timeline to bring them down to an acceptable level.
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