Loan recast requests pile up, could cross Rs 1 lakh cr this year

Written by Vishwanath Nair | Mumbai | Updated: Nov 9 2013, 14:35pm hrs
With corporates approaching the corporate debt restructuring (CDR) cell to recast loans worth R23,425 crore of debt in October the largest quantum in a single month referrals to the cell this year could cross R1 lakh crore. Since April, companies have requested recasts of close to R88,000 crore.

While there was some respite in the July-September period when the requests stood at Rs 24,859 crore compared with Rs 39,251 crore in the April-June period, the trend seems to be reversing.

While only six corporates approached the cell in October, four of these were large exposures, a senior banker told FE. ABG Shipyards R11,000-crore exposure was the biggest. The company owes banks within the cell close to R10,000 crore and the remaining exposure is with lenders outside the cell.

New Delhi-based Era Infra Engineerings R5,800 crore was the second largest account referred for recast, the banker said. Another major case was Gujarat NRE Cokes debt worth R2,400 crore.

FE had earlier reported that Hyderabad-based Coastal Projects had also been referred to the CDR cell in October for a recast of its R3,575-crore debt.

During the month, the cell approved the restructuring package for four cases with loans worth R5,810 crore. Of these, Soma Enterprises R4,700-crore exposure was the largest, the banker said. Apart from this, Educomp Infrastructure, SV Power and Southern Online also received approvals on their restructuring package during the month.

Bank of India (BoI) restructured loans of about Rs 855 crore in the July-September quarter and says it might need to recast another R1,100 crore in the third quarter. Punjab National Bank too restructured loans worth R2,768 crore in the July-September period.

Union Bank believes it might need to recast about Rs 4,000 crore in the December quarter while ICICI Bank has indicated a number of Rs 2,000 crore and Bank of Baroda of another Rs 2,200 crore.

VR Iyer, CMD, BoI, acknowledged that containing the stress has become a challenge despite the fact that banks now monitor assets closely and have put in place early-warning systems.

Due to the slowing economy and policy logjams, corporate balance sheets remain stressed, CDR chairman RK Bansal had told FE earlier.

Under new Reserve Bank of India rules, banks need to set aside 5% of the fresh restructured loans as provisions. If the loans turn bad, the provisioning goes up to at least 15%. Higher provisioning affects profitability of banks. In 2012-13, banks restructured over Rs 75,000 crore of loans under the CDR mechanism, nearly double the level in 2011-12.