More than Rs 1 lakh crore worth of loan recast proposals could hit the corporate debt restructuring (CDR) cell this year with more companies stressed in a slowing economy. The number was only slightly smaller at R90,000 crore last year. Along with a rise in restructured assets, more loans are turning toxic; one in every five accounts recast is now slipping or becoming a non-performing asset (NPA). That’s higher than the 15% slippage seen till last year. Restructured accounts accounted for 6% of all advances at the end of June, while NPAs were nudging 4% of total loans.
Bank of India (BoI) restructured loans of about R855 crore in the July-September quarter and says it might need to recast another R1,100 in Q3FY14. Union Bank believes it might need to recast about R4,000 in the December quarter while ICICI Bank has indicated a number of R2,000 crore and Bank of Baroda, R2,200 crore. In the April-June period alone, there were references totalling R39,521 crore while R21, 266 crore was racast. VR Iyer, CMD, BoI acknowledges 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,” said CDR chairman RK Bansal.
While some economic data suggest an industry turnaround, the pace of restructuring has actually picked up over the last few quarters. “Most cases we get in CDR cell today are from steel, engineering, procurement and construction (EPC) contractors and power sectors,” Bansal told FE. Delays in the allocation of coal mines, environmental and other clearances, as well as the lack of adequate funds — particularly the equity portion — are the key reasons which have pushed companies to seek more lenient terms to repay their borrowings.
However, bankers maintain that they need to support companies during economic downturns and remain hopeful that these projects will turn into performing assets when the economy revives. “Many companies are struggling due to genuine troubles associated with the business environment and we cannot pull off the lifeline. However, we are cracking down on cases of wilful default and criminality,” said Shyamal Acharya, DMD (mid-corporate), State Bank of India.
In the June quarter, banks restructured loans of 12 companies totalling R20,000 crore. Some of the larger cases included the R13,500-crore debt recast of engineering and construction firm Gammon India and the R3,000-crore