Promoters of companies that are facing insolvency and bankruptcy proceedings are within their rights to bid for their own assets, Rajnish Kumar, chairman of State Bank of India (SBI) said on Monday.
Following a directive from Reserve Bank of India (RBI), banks have started insolvency proceedings against top defaulting companies and 13 of them has been admitted by the National Company Law Tribunal.
“Ethical..I don’t know, but legally they are within their rights to participate,” Mr Kumar said at the sidelines of FICCI-IBA banking conclave.
“I am not concerned about that because if even it is existing promoters there will be few preconditions from the creditors side. One is that they should not be wilful defaulters and second is the forensic audit which should clear them of any wrong doing and third is about the quality of resolution plan which is submitted,” he said.
Banking experts believe that there is an issue of moral hazard if defaulting promoters bid for their assets during insolvency proceedings. This is because, banks have to take deep haircut while selling the assets. The other view is that if assets are sold to same promoters then haircut for banks would be less since a new investor would want a higher discount for an unknown asset.
Mr Kumar said, for banks the objective is to enhance the enterprise value.
“The idea will be to enhance the enterprise value and anybody who give the maximum enterprise value, which will be in the interest of the enterprise itself, the lenders and country as a whole. It will be our approach,” he said.
“Baseline we have already drawn, that there is no place for wilful defaulter or people who have diverted fund as proved in the forensic audit. But otherwise if law permits that existing promoters to participate then we can’t help it. It is very much there and we have to abide by the law,” he added.