Bottomless pit of bad loan recasts may gobble up Rs 15,400 cr in Q2

Written by Vishwanath Nair | Aftab Ahmed | Mumbai | Updated: Aug 7 2013, 05:30am hrs
Asset quality of banks continues to deteriorate with the end of the restructuring cycle nowhere in sight. On top of the R9,500 crore of loans that seven banks collectively recast in the three months to June, 2013, they are expected to recast another R15,400 crore in Q2FY14. ICICI Bank, the countrys largest private bank, expects to recast over R1,000 crore. For Punjab National Bank(PNB), restructured loans now account for around 10% of total loans. For Central Bank, this ratio is even higher at 13% while for Bank of Baroda (BoB), it is approximately 8%. On a rough reckoning, 20% of restructured loans turn bad.

Recasts via the corporate debt restructuring (CDR) cell went past the R2.5 lakh crore mark at the end of June with R20,000 crore being restructured in Q1FY14 alone. Last year, the CDR cell had restructured loans worth over R76,500 crore.

The bigger portfolio of restructured loans will cost banks more by way of higher provisions and profits; in the final guidelines announced end-May, the central bank had raised the provisioning requirement for all new restructured loans to 5% starting June 1, much higher than the earlier 2.75%. For all standard restructured assets, provisioning will be raised to 5% by 31 March 2016, in a calibrated manner.

Bankers seem to have no answer to the problem with one corporate after another asking for lenient repayment terms. From GTL which wanted an easier payment schedule for a whopping R16,000 crore to the near-bankrupt Suzlon asking for a recast of R11,000 crore, banks appear to have acceded to almost every request. The recklessness with which banks lent is reflected in the fact that a relatively small company like Electrosteel Steels, which had less than R613 crore turnover in FY13, has an outstanding of R10,000 crore. Jindal Stainless, which reported a loss of R820.8 crore in FY13, had requested for a recast for R9,000 crore. In the queue are Lanco Infra and Bombay Rayon, both of whom want R4,000 crore recast.

Every time we say restructuring will slow down, we end up doing some more, said Ashwani Kumar, CMD, Dena Bank, summing up the situation that banks have been facing for a year now. RK Goyal, executive director at Central Bank of India told FE that while he believes most of the restructuring has been completed, given the weak economic environment, asset quality continues to trouble banks.

Indeed, the picture could look uglier once State Bank of India, the countrys largest bank, announces results on August 12. On average, SBI has been recasting roughly R5,000 crore every quarter in the last four quarters. In the year to March 31, 2013, SBI restructured R19,500 crore of assets, with R8,669 crore recast in the fourth quarter alone.

Public sector lenders Union Bank and BoB expect to restructure Rs 5,000 crore and Rs 2,500 and 3,000 crore respectively in Q2FY14, while the Central Bank of India is looking to restructure Rs 1,500 crore. Bank of India has forecast a restructuring pipeline of Rs 800-1,000 crore and Dena Bank expects to restructure at least Rs 800 crore.

BJP to oppose higher FDI cap in insurance

ln what could be a major blow for the governments plans to attract more foreign investment, as it tries to tackle the twin troubles of a volatile currency and a bloated current account deficit, the principal opposition Bharatiya Janata Party has said that it is not in favour of raising the ceiling of foreign direct investment in the insurance sector. BJP leader Yashwant Sinha told FE that his party will not support the insurance amendment bill, which proposes the FDI cap in the insurance sector to be upped from 26% to 49%.