Bottomless pit of bad loan recasts may gobble up Rs 15,400 cr in Q2

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SummaryThe queue of corporates asking for lenient repayment terms gets longer

Asset quality of banks continues to deteriorate with the end of the restructuring cycle nowhere in sight. On top of the R9,500 crore of loans that seven banks collectively recast in the three months to June, 2013, they are expected to recast another R15,400 crore in Q2FY14. ICICI Bank, the country’s largest private bank, expects to recast over R1,000 crore. For Punjab National Bank(PNB), restructured loans now account for around 10% of total loans. For Central Bank, this ratio is even higher at 13% while for Bank of Baroda (BoB), it is approximately 8%. On a rough reckoning, 20% of restructured loans turn bad.

Recasts via the corporate debt restructuring (CDR) cell went past the R2.5 lakh crore mark at the end of June with R20,000 crore being restructured in Q1FY14 alone. Last year, the CDR cell had restructured loans worth over R76,500 crore.

The bigger portfolio of restructured loans will cost banks more by way of higher provisions and profits; in the final guidelines announced end-May, the central bank had raised the provisioning requirement for all new restructured loans to 5% starting June 1, much higher than the earlier 2.75%. For all standard restructured assets, provisioning will be raised to 5% by 31 March 2016, in a calibrated manner.

Bankers seem to have no answer to the problem with one corporate after another asking for lenient repayment terms. From GTL which wanted an easier payment schedule for a whopping R16,000 crore to the near-bankrupt Suzlon asking for a recast of R11,000 crore, banks appear to have acceded to almost every request. The recklessness with which banks lent is reflected in the fact that a relatively small company like Electrosteel Steels, which had less than R613 crore turnover in FY13, has an outstanding of R10,000 crore. Jindal Stainless, which reported a loss of R820.8 crore in FY13, had requested for a recast for R9,000 crore. In the queue are Lanco Infra and Bombay Rayon, both of whom want R4,000 crore recast.

“Every time we say restructuring will slow down, we end up doing some more,” said Ashwani Kumar, CMD, Dena Bank, summing up the situation that banks have been facing for a year now. RK Goyal, executive director at Central Bank of India told FE that while he believes most of the restructuring has been completed, given the weak economic environment, asset quality continues to trouble banks.

Indeed, the picture could look

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