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Banks shy away from companies facing NCLT action

By:  GK Gupta (ET) , Place:  Chandigarh ,  Update:14 Sep 2017
Banks are turning their backs on companies taken to the National Company Law Tribunal under the Insolvency and Bankruptcy Code and the latter are struggling to keep their operations going and are being forced to turn to non-banking finance companies that levy stiffer conditions. 

"The creditors need to realise that if they don't release funds, the value of the company falls further," said an insolvency professional with one of the 12 companies referred to NCLT. "For us running the company is of primary concern and banks should consider that these companies wouldn't be heading towards closure if they could sustain themselves on their own." 

The Insolvency and Bankruptcy Code allows resolution professionals to raise 'interim finance' during the resolution process after getting approval of the committee of creditors. Several resolution professionals said big companies, including Bhushan SteelBSE 0.30 %, Alok IndustriesBSE 0.71 %, Amtek AutoBSE 0.00 % and Innoventive industriesBSE -4.55 %, are struggling to obtain interim finance. 

"If banks convince us that our demand for interim finance is not justified, then we have to agree with them but so far they have only made excuses," said a resolution professional. "The law says that interim finance has the highest priority and will rank number one when resolution happens, but none of the companies succeeded in raising any funds." 

But banks say it was not easy to dole out interim finance to these beleaguered companies as the exposure to them was already very high. 

"Banks have a lot of money at stake.Also realise that the objective for the company is to stay afloat, which will not require significant amount of capital," said a senior banker who did not wish to be named. "The committee of creditors takes case-to-case basis decision on this but any new money that we part with has to be done prudently." In June, the RBI identified 12 companies that accounted for 25% of gross bad loans in the banking system for immediate bankruptcy proceedings. 

Current Plight 

IBC allows resolution professionals to raise 'interim finance' during resolution process Bhushan Steel, Alok Industries, Amtek Auto & Innoventive struggle to obtain interim finance Banks say it is not easy to dole out interim finance Exposure to these companies is already very high. 

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