Non-performing assets (NPAs) in the banking system are set to increase in the range of R60,000 crore to
1 lakh crore in the next five months, rating firm India Ratings and Research said on Tuesday.
With the Reserve Bank of India’s forbearance on classification of restructured asset to end after March 31, 2015, no fresh restructured accounts can be classified as standard after the deadline.
The agency, for this report, has analysed the credit metrics of the top 500 corporate borrowers, whose aggregate debt stood at R28.76 lakh crore in FY14, which was 73% of the total bank lending to industry, services and export sectors.
“Around 82 of these 500 largest borrowers have already been formally tagged as financially distressed (identified as NPA, CDR or restructured) and another 83 (17%) of these top 500 borrowers accounting for 9% of the overall debt of the group, have severely stretched credit metrics,” it said.
India Ratings said potentially one-third to half of these 83 accounts could be in the category of SMA 2 (special mention accounts) with delays in debt servicing ranging between 61 and 90 days. “If some of these corporates are unable to generate significant cash flow or infuse significant equity in the near term, they may be identified by their lenders for restructuring pursuant to the RBI guidelines,” the report added.
Gradual withdrawal of regulatory forbearance could persuade banks to take a decisive call on the weak corporates
that need to be restructured with the timeline of March 2015 in mind.
“The RBI guidelines also incentivise banks that quick implementation of a restructuring package would enable them to benefit from the existing special asset classification of such restructured accounts.”
The report added that after 2013, the amount of corporate debt referred to restructuring has shot up, with the average ticket size of CDR packages approved creeping up after May 2013.
“While the coincidence of the spike in CDR amounts with respect to RBI announcement of withdrawal of regulatory forbearance is difficult to miss, it must be acknowledged that on-going poor economic conditions were definitely a
significant reason behind this observation,” added India Ratings.