Future Retail Lenders Seek To Push Back An Insolvency Filing

Lenders to Future Retail Ltd. are mulling the invocation of the Reserve Bank of India’s June 2019 circular for restructuring stressed accounts, as they try to delay insolvency proceedings.

According to two people with direct knowledge of the matter, lead lenders, especially State Bank of India, are keen on invoking the circular, as it allows a second restructuring of the loan account and will provide time for a new resolution plan to be implemented.

According to the June 7, 2019 circular, lenders are allowed a 30-day review period and another 180 days to come up with a resolution plan. The scheme requires lenders to set aside additional provisions of 20% if a resolution plan is not implemented after 180 days. If a resolution plan is not implemented within 365 days after the scheme is invoked, additional 15% provisions will be required by lenders.

Invoking the circular, however, would allow lenders to push back an insolvency filing against Future Retail, the people quoted above said on the condition of anonymity.

Future Retail owes around Rs 10,000 crore to its creditors, including banks, external commercial lenders and bondholders. Major lenders to Future Retail include Union Bank of India, Bank of India, SBI and Bank of Baroda.

On Jan. 1, Future Retail informed exchanges that it had not paid Rs 3,494 crore due to its creditors as per terms of the one-time restructuring invoked for the company under a scheme permitted by the RBI during the Covid crisis. The company was unable to make the payment even within a 30-day grace period provided under the scheme. A plan to sell Future Group’s small-format stores to make the payment has not worked out.

Since then, Future Retail has approached the Supreme Court to block lenders from classifying the loan account as a non-performing asset. However, last week, lenders informed the top court that the process of NPA classification had already started.

While announcing quarterly earnings, SBI Chairman Dinesh Khara told reporters that the bank had set aside Rs 1,700 crore in additional provisions in the October-December quarter against a “large retail company”.

Queries mailed to Future Group and SBI on Tuesday were not answered.