Paying for past sins: Banks in for long period of pain

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SummaryDespite tighter norms, banks appear reconciled to recast, a fallout of reckless lending in the boom years. What’s worrying is the significantly larger amounts involved.

It’s been an unusually busy year for the corporate debt restructuring (CDR) cell, the team that meets to decide whether customers should be allowed easier repayment terms because their businesses are in trouble. Few in the banking fraternity would have guessed they would be in so much trouble before the year was out, fewer would have believed the numbers: As much as R58,862 crore of loans restructured between April and December, on the back of R 76,479 crore recast in 2012-13. And this despite tighter norms for restructured loans in the form of higher provisioning that makes it far more expensive for banks to recast debt.

A few years back, a meeting at the CDR cell could be wrapped up in a couple of hours, but, these days, they drag on and even the lunch break is a hurried one. As one banker, who has been a part of these congregations for several years, confirms, at times, it’s nine at night and no decision is in sight. In the good old days, he recalls, a meeting would be called once a month, but, now, with a flurry of requests for recasts, even two sittings a months aren’t enough to take care of the load. In October alone, cases worth over R22,000 crore were referred to the cell, the highest ever in a month.

It’s not that there are many more requests to be looked at — the run rate of 32 a quarter in 2012-13 has fallen off to 24 a quarter in 2013-14. What is causing bankers to spend longer hours poring over proposals are the significantly larger amounts that borrowers want restructured.

In 2012-13, for instance, requests worth R91,225 crore had piled up, but at R95,528 crore in the nine months to December 2013, it looks like the quantum of requests will be far higher this year. Of the 10 largest recasts, five have happened in 2013.

Bankers blame the poor state of the economy for the mess the industry is in. And with the data not suggesting a recovery anytime soon, they’re not sure the revival plans are going to work. However, the tighter norms for recast loans have forced lenders to be strict with promoters; they now insist the promoters cough up their fair share of the sacrifice and dismiss requests if they don’t comply with the rules. They are also insisting on a personal guarantee, now compulsory after

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