Debt recasts for 2013 hit record Rs 74,000 crore

Written by Vishwanath Nair | Mumbai | Updated: Jan 2 2014, 06:28am hrs
RupeeIn Dec, six accounts worth Rs 10,121 cr were restructured , including Lanco Infratech?s Rs 7,324 cr. Express
Loans worth Rs 74,000 crore for 77 customers have been recast by the corporate debt restructuring (CDR) cell in the 12 months to December 2013, the largest amount reworked in any year. In December alone, the cell restructured six accounts worth R10,121 crore, including Lanco Infratechs R7,324 crore, a senior banker said. While borrowers had requested for easier repayment terms for an amount R1.27 lakh crore, banks limited the amount to R74,000 crore.

Bankers for their part are unwilling to call an end to recasts. The pace may slow down somewhat but its too soon to conclude that requests for restructuring are going to fall significantly, a senior banker told FE.

In its financial stability report (FSR) released on Monday, the RBI raised serious concerns on the rising quantum of restructured loans. As on September 30, the average stressed asset ratio the ratio of gross non-performing assets (NPAs) and restructured advances to total assets stood at 10.2% for the banking system, with state-owned banks accounting for the bigger share.

This is much higher than the 9.2% recorded on March 31.

The central bank estimates loans worth Rs 3.25 lakh crore have so far been restructured through the CDR cell and bilaterally together. Concerns have emerged regarding the large and growing quantum of forborne assets and their potential impact on the asset quality of banks, the central bank said in the FSR.

Whats worrying bankers is that a big chunk of the recast amount, or about Rs 30,000 crore, could go bad given cash flows of companies are severely strained. Some bankers believe that the slippage into NPAs could turn out to be even higher; till last year the slippage has been roughly 15%.

The April-June period saw requests worth Rs 39,521 crore brought to the cell, the largest in any three-month period. December, however, turned out to be one of the slowest months with only Rs 4,590 crore worth of loans being referred, compared with Rs 22,000 crore in October. Large cases, like that of Gammon Indias Rs 13,500-crore loan, were approved while those like ABG Shipyards Rs 11,000 crore were discussed.

Iron and steel manufacturers, power producers and engineering, procurement and constructions companies are among those approaching the CDR cell the most. In fact, iron and steel companies are the biggest beneficiaries of recasts, accounting for more than 21.3% of the recast loans, though at 18.1% EPC firms have also seen a big chunk of loans being reworked.

In the FSR, the central bank noted that RBI had provided regulatory forbearance in classification of standard assets which were restructured through the CDR cell, thereby allowing banks to escape higher provisioning for such accounts. The regulatory concern regarding restructuring arises from the possibility of the relaxations not being used judiciously by banks commensurate with the viability of projects. These relaxations for asset classification and provisioning will be phased out by April 1, 2015.