With their efforts to revive stressed companies via the strategic debt restructuring (SDR) scheme not having paid off, bankers are looking to do some ‘deep restructuring’ of loans but only if the Reserve Bank of India (RBI) approves.
Apprehensive of the repercussions of taking big haircuts on corporate exposures, banks are discussing the pros and cons of such a move at the Indian Banks’ Association before approaching the central bank.
Lenders are afraid any decisions taken by them to recast loan exposures by taking big hits could be scrutinised by vigilance agencies; they are also worried individual bankers would be penalised.
“While S4A (scheme for sustainable structuring of stressed assets) specifies that just 50 % of the existing exposure needs to be sustainable and the rest can be converted into equity, there are no such guidelines for deep restructuring,” a senior banker with a mid-sized public sector bank told FE.
In a deep restructuring banks typically convert a portion of debt into equity and also extend the repayment period for the rest of the loan.
Among the exposures for which lenders are looking to do a deep restructuring are Essar Steel, Uttam Galva, Jaiprakash Associates and Bhushan Power & Steel. Any proposal for a deep restructuring must be cleared by the joint lenders’ forum (JLF). Bankers say they are willing to help revive some stressed firms without necessarily changing the management or upgrading the account from non-performing to standard.
“The haircut in deep restructuring could turn out to be smaller than if there is a change in management because an investor will always look for a big discount,” a senior banker pointed out.
Another banker pointed out that many of the accounts where debt had been converted into equity under the SDR scheme had turned non-performing and were now costing banks in terms of additional capital. “The companies are enjoying a repayment holiday at the expense of their lenders,” he explained.
The guidelines say lenders must convert the debt into equity within seven months from the date the SDR scheme is effective, failing which the asset would classified as a non-performing asset.
SDR rules allow banks to convert debt at a price below the current market value or an average of closing prices during the 10 trading days before the JLF decision. They can now own at least 51% of the equity of the company. Following rules put out by RBI in June 2015, bankers have decided to try out a restructuring for at least a dozen companies including Electrosteel Steels, Jyoti Structures, Lanco Teesta Hydro Power, Monnet Ispat, Coastal Projects, IVRCL, Gammon India and Visa Steel.