Non-performing assets (NPAs) for a clutch of banks are set to go up by close to Rs 4,500 crore in the March quarter, solely on account of 10 failed recasts. With this, the total value of failed restructurings in FY16 has risen to Rs 31,000 crore from Rs 27,000 crore in the previous year, data from the Corporate Debt Restructuring (CDR) cell shows.
Among the large recasts to have failed at the cell in FY16 were Arshiya Ltd with gross debt of Rs 1,000 crore, Pradip Overseas (Rs 1,162 crore), Parekh Aluminex (Rs 2,000 crore), Vandana Vidhyut (Rs 1,100 crore), Ind-Swift Laboratories (Rs 950 crore) and Sakthi Sugars (Rs 870 crore).
According to Reserve Bank of India data, gross NPAs for the banking system had risen to 5.1% of total assets in September 2015 from 4.6% in March. Among the main reasons debt restructurings not working out are the inability of promoters to infuse the requisite equity capital into the company in the defined period and a delay in repayments post the moratorium. The restructuring schemes also often fail because promoters are unable to sell non-core assets to mobilise resources as promised.
Chhattisgarh-based Vandana Vidhyut was named by CBI in the coal block allocation scam on charges of conspiracy, cheating and criminal misconduct. The company is not listed on the stock exchanges. The other large company to have exited the CDR cell in Q4 FY14 was Parekh Aluminex — one of India’s largest manufacturer and exporter of aluminum foil products.
Lenders to the firm, include State Bank of India (SBI), Bank of Baroda (BoB), Union Bank of India and Indian Overseas Bank (IOB) among others. In FY13 (latest available data), it reported a net loss of `384 crore on the back of Rs 1,095 crore in revenues.
Viney Kumar, chairman of the CDR cell, recently explained to FE that if the firm’s performance exceeds the projections by 25% or more, the company is identified for a successful exit.
“If it fails to meet the projections then the package fails,” Kumar observed.
In 2014, four other companies, whose total debt obligations were Rs 14,000 crore had been restructured to make it easier for them to repay their loans, exited the CDR cell. Once the asset is out of the CDR fold, banks have the option of either writing it off or keeping it on their books as NPAs. They can also sell the loan to an ARC as they did with Bharti Shipyard (R5,800 crore) and Hotel Leelaventure (Rs 3,000 crore).
The RBI had allowed lenders to classify restructured accounts under the restructured-standard category till March 2015. However, from April banks have been instructed to classify restructured accounts as NPAs and, given the continued financial strain across corporate India, chances are the NPA portfolios of some lenders could grow bigger.
The CDR cell, which has been inundated with requests for loan recasts in the last couple of years, has not received any recast requests so far in FY16. In FY15, the cell approved 54 cases worth Rs 72,560 crore for recast. Lenders approach the CDR to provide some relief to companies under stress by means of reducing the rate of interest being paid and also offering a 2-3 year moratorium on interest payments.
