With the Swiss challenge mode of auction being put forward as a possible solution to the battle over Future Retail between Reliance Industries and Amazon, the classification of loans to the country’s second-largest retailer as non-performing assets (NPAs) is likely to have a larger dent in several banks’ books during the fourth quarter.
According to sources, Chennai-based Indian Bank is likely to have an impact of around Rs 800 crore during the current quarter due to NPAs on account of Future Retail.
Earlier, a consortium of 27 banks had indicated they would have to make combined provisions of around Rs 9,000 crore due to non-payment by the retailer.
On Thursday, Amazon and Kishore Biyani-led Future Group agreed to initiate talks on an out-of-court settlement on the dispute between them regarding the acquisition of the former by Reliance Industries. Lenders see this as a positive sign and expect a faster resolution of the issue. For Indian Bank, the overall loans on account of Future Retail are around Rs 1,100 crore in two accounts. Of those Rs 800 crore is likely to be NPA this quarter. The bank has made a provision of 15 per cent on account of the retailer. Earlier, the lenders had suggested an open bid between Amazon and Reliance Industries to settle the dispute on Swiss Challenge mode with a base price of around Rs 17,000 crore, according to media reports.
Future Retail had approached the Supreme Court in February, looking for protection from being a defaulter after its missed payment to the banks of around Rs 3,494 crore after it failed to sell its assets due to the ongoing legal battle. Based on a one-time restructuring agreement that the company had entered into with the consortium of banks and lenders, it was supposed to pay that amount by December 31.
Both the parties agreed on out-of-court talks while the Supreme Court was hearing a plea by Amazon against a Delhi High Court stay order on Singapore tribunal proceedings against the Future deal with Reliance Industries.
Despite a higher share of Future Retail, Indian Bank is likely to be in a better spot because the share of remaining corporate defaulters is much lower.
During the third quarter, the bank’s collection efficiency had improved to 94 per cent against 88 per cent in March 2021, 90 per cent in June, and 93 per cent in September.
The slippage in the quarter ended December was Rs 2,700 crore, of which Rs 955 crore in the corporate segment. Of the Rs 955 crore, Rs 385 crore pertains to two accounts that were NPAs but classified as standard due to a court order.
The other major slippage came in the MSME (micro, small, and medium enterprises) segment, which accounted for around Rs 896 crore, a part of which was from the restructured book. Business Standard