India Incs restructured loans turning toxic at a faster pace

Written by Vishwanath Nair | Mumbai | Updated: Feb 24 2014, 21:01pm hrs
Infra companiesInfra companies may require another round of restructuring, says CDR cell head. Reuters
Slippages from restructured assets are set to rise as promoters are unable to turn around their businesses in a weak economy and to repay loans even after bankers have given them easier terms. RK Bansal, chairman of the corporate debt restructuring (CDR) cell, told FE the rate of slippages could go up to 15% from the current levels of 10%. The slower-than-expected economic recovery and delayed clearances for projects will result in a higher share of failed restructuring cases, Bansal said.

One reason for the rising slippages is that many of the proposals approved by the CDR cell in 2011-12 were done in the belief that the economy would recover quickly, thereby reviving demand, he explained. However, with the economy slowing, not only are more promoters approaching the CDR cell for more lenient repayment terms, more restructured loans are going bad.

Bansal believes the delay in government approvals and the difficult macroeconomic environment are likely to have a particularly severe impact on companies in the infrastructure space, including steel and construction companies. These cases will probably need a second round of restructuring, Bansal said. Once the second restructuring is done, we call it a failure because it makes it a non-performing asset (NPA).

At the end of December 2013, approximately 10% of nearly R2.9 lakh crore of assets approved by the cell had failed with promoters not keeping up their end of the bargain. The working group headed by B Mahapatra, executive director, Reserve Bank of India (RBI), which reviewed the guidelines on restructuring of advances, estimated that 25-30% of restructured loans may slip into the NPA category.

This assumption was based on the fact that restructurings have taken place only in the recent past with long moratorium and repayment holidays and the repayment behaviour of such borrowers is still not known, the committee said.

The majority of slippages over the past year are the result of companies failing to meet interest and principal repayments. In the October-December quarter, two companies with outstandings of Rs 1,500 crore exited the CDR cell successfully while the accounts of 12 firms with borrowings of Rs 4,100 crore needed to be pulled out.

Even after fairly large recasts over the past few quarters, the pipeline remains big. State Bank of India confirmed, after it announced the results for the December 2013 quarter, it has a restructuring pipeline of Rs 9,500 crore across the next couple of quarters.

VR Iyer, CMD, Bank of India, had said after announcing the October-December results that slippages from restructured assets to NPAs was on average about 16%.

Iyer added that close to Rs 300 crore had been restructured during the quarter and the estimated pipeline was around Rs 1,500 crore. Most of the proposals in the CDR cell will be restructured this quarter itself, she said.

At ICICI Bank, restructured advances during the quarter were R 1,776 crore and the management indicated that there was a pipeline of R3,000 crore.

SS Mundra, CMD, Bank of Baroda, says the pipeline for the January-March period is roughly around Rs 1,500-2,000 crore.

Union Bank of India restructured loans worth R1,004 crore in the October-December period, of which Rs 640 crore is owed by state power distribution companies.

The bank has a restructuring pipeline of Rs 1,800 crore for the January-March period, a big chunk of which will be accounted for by one account, Arun Tiwari, CMD, said. The run rate for CDR referrals remained high at Rs 11,000 crore in January. Among the bigger requests for restructuring is that put forward by the Hyderabad-based IVRCL, which is looking for easier terms to repay Rs 6,500 crore. Smaller firms that have put in requests for lenient repayment conditions include the Nagpur-based Gupta Coal India promoted by Padmesh Gupta and with interests in coal, mining and logistics which wants Rs 2,000 crore recast. Power infrastructure provider Deepak Cables in Bangalore and promoted by K Surya Rao are also hoping to recast Rs 1,000 crore.