Icra expects 35% of CDR cases to fail

Written by fe Bureau | Mumbai | Updated: Sep 5 2014, 07:18am hrs
Even though there has been a drop in referrals to the corporate debt restructuring (CDR) cell in the last couple of months, rating agency Icra on Thursday warned that close to 35-40% of R2.5-lakh-crore live loans under CDR may fail.

Going by pure mathematics and historical trends, we expect about 40% of the cases to fail. However, when the CDR cell publishes its report on live cases, it generally reports the size of the loan without taking into account the recoveries that might have happened, Vibha Batra, senior vice-president, Icra said.

As on June 30, there were 130 cases with an aggregate debt of R38,636 crore that were withdrawn from the CDR cell on account of package failure. A CDR package fails when the borrower is not able to comply with the terms set in the restructuring package and bankers, therefore, withhold the priority loans.

After the failure of an account in the package implementation stage, it soon becomes a non-performing asset and banks begin their recovery measures.

According to data compiled by the CDR cell, infrastructure and iron s Steel are the two major contributors to the total live cases with total debt of R57,906 crore and R40,783 crore, respectively.

Meanwhile, even though asset quality pressures remained, banks have sold extensively to asset reconstruction companies in FY14. Data from Icra showed that banks sold NPAs of approximately R15,000-20,000 crore in 2013-14, significantly higher than the past two years and public sector banks accounted for more than 90% of NPA sales.

Icra also pointed out that standard restructured advances of PSBs remain at an elevated 6.2% as on June 30 compared to 6.2% in the March quarter, although a decline in referrals to the CDR cell could arrest further increase in standard restructured advances.

Management of one large steel exposure (estimated at 0.6% of banking credit), the Supreme Courts decision on coal blocks and deleveraging efforts by large corporate groups, among other factors, would shape the asset

quality profile of banks going forward, Icra said in a