SBI led consortium recovers a further INR58b via sale of UBL shares

ED confiscates assets worth ~80% of losses caused by three fugitive borrowers

* In a recent development, the Debt Recovery Tribunal (DRT) has sold United Breweries (UBL) shares worth INR58b for the SBI-led consortium, which were hitherto owned by Mr. Vijay Mallya. The Banks are expected to recover another INR8b from sale of shares of United Spirits.

* In FY19, the consortium had already recovered INR13.6b from the sale of shares of UBL and USL. The total exposure is expected to be ~INR100b, with a principal loan of INR70b. Thus, total recoveries from the share sale would be ~80%.

* SBIN’s exposure towards the principal amount stands at INR17b. It could recover ~INR14b, along with interest. Among other major lenders, PNB and IDBI have exposure of ~INR8b each, BOI (INR6.5b), and BOB (INR5.5b).

* Till date, the ED has attached/seized assets worth INR182b in three cases pertaining to Mr. Mallya, Mr. Nirav Modi, and Mr. Mehul Choksi. This forms ~80% of the total default, which is pegged ~INR226b. Of this, assets worth ~INR90b, comprising ~40% of the total default, has already been transferred to the PSB consortium.

* Within total confiscated assets worth INR182b, INR125b pertains to Kingfisher Airlines, and INR26b/INR24b pertains to Mr. Choksi/Mr. Modi.

* While the recovery rate for Banks remains healthy, the relentless pursuit of offenders and the efforts to get them extradited back to India to face appropriate legal action will significantly improve credit discipline. Such stringent actions and an uncompromising stance of the government, along with other key reforms like NCLT and upcoming NARCL, will lay the foundation of a clean and sustainable corporate credit cycle. We expect corporate credit growth to recover gradually as economic growth recovers and COVID-19 cases subside. Over FY19-21, Corporate slippages for SBIN amounted to ~INR374b and constituted ~34% of total slippages, while Retail slippages have varied between 9% and 12%.

* We expect SBIN to be a key beneficiary of these recoveries, along with other PSU Banks. There are few other big ticket accounts under resolution such as DHFL, which along with continued recovery from AUCA, would enable controlled credit costs and support the earnings momentum. SBIN, ICICIBC, and AXSB continue to be our top picks in the sector. Please refer our latest BFSI model portfolio report for a glimpse of our preferences in the BFSI space.

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