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Government, bankers worried over high haircuts in IBC

NEW DELHI: Top bankers are worried that the IBC process which has been hailed as a fast track solution to the pile of bad debts facing the Indian banking may actually end up forcing banks to take more than provided for haircuts and result in larger losses for state-run banks.

The top five IBC resolutions have so far seen banks take on haircuts ranging from 38 to 83 per cent. In case of Alok Industry which Reliance is taking over, the banks are taking a haircut of 83 per cent out of their total loan pile of Rs 30,200 crore. Similarly, in the case of Monnet Ispat the haircut is 75 per cent of total dues of Rs 11,478 crore and in case of Electro steel it is 62 per cent of a total due of Rs 13,958 crore.

“These cases have been resolved but the fact is that banks have taken huge haircuts. Normally the haircut for such large loans is about 30-40 per cent globally. The higher haircut simply means banks will mark up larger provisioning and losses,” said the chairman of a Delhi-based state-run bank. Finance ministry officials agree that the huge haircuts would impact bank profitability in coming quarters. “Our worry really is with the loan resolutions that are coming up, especially of medium-sized firms, the haircut may be too steep…” they said.