In an indication of the stress in India?s corporate sector, loans amounting to R31,400 crore were approved for recast by the corporate debt restructuring (CDR) cell in the three months to September 2012. For perspective, this is roughly 80% of the total debt restructured by the cell last year. Indeed, banks appear to be restructuring loans faster than they are disbursing them because, between April and September this year, loan growth has been extremely sluggish at just 1%.
Corroborating a recent observation made by deputy governor of the Reserve Bank of India (RBI) KC Chakrabarty, most recasts are for large companies; among the more well-known names that have been given easier repayment terms are Hindustan Construction Company (HCC) for R7,363 crore, Bharti Shipyard for R5,343 crore and Hotel Leelaventure for R2,934 crore. Others include Jaibalaji Industries, which wants easier terms to repay R2,102 crore, Moser Baer Solar (R2,054 crore) and ICOMM Tele (R1,258 crore).
The number of companies lining up at the door of the CDR cell continues to increase ? in the July-September quarter, 37 corporates requested the cell for recasts and the amount involved was R17,000 crore. Most corporates are in the iron and steel and infrastructure sectors. Last year, close to 50 borrowers were given lenient repayment terms for a total debt of R39,311 crore; in the April-June quarter, 17 accounts were recast with a total value of nearly R18,000 crore. The most high-profile case referred to the cell in the July-September quarter was that of Hyderabad-based media firm Deccan Chronicle Holdings (DCHL). On September 26, the consortium of lenders, with an exposure of R4,068 crore, postponed a decision on admitting the cash-strapped company?s proposal to the cell. Bankers are awaiting the forensic report by Canara Bank before taking a final decision. ICICI Bank, Axis Bank, Canara Bank, IDBI Bank and Andhra Bank are some of the big lenders to DCHL.
A committee headed by B Mahapatra, executive director, RBI, had in July this year recommended stricter terms for restructured loans, suggesting personal guarantees on the part of the promoter should be mandatory and also that provisioning be increased to 5%.
The committee has called for promoter contribution at 15% of the diminution in fair value or 2% of the restructured loans, whichever is higher. That apart, it has suggested avoiding conversion of loans into equity or preferential shares as far as possible.
According to RBI data, over a three-year time frame, growth in restructured loans at 43% far outpaced the increase in advances at just 19%. In 2011-12, they jumped 60% while total loans grew at a shade under 17%.
The cumulative amount of restructured standard loans alone was close to R2.2 lakh crore at the end of March, 2012 and as a share of gross advances these had more than doubled to 6.8% up from 2.73% three years back.
Other companies asking for lenient repayment conditions are Leo Meridian Infrastructure Projects and Hotels (R597 crore), Kamachi Sponge and Power Corp Ltd (R1,009 crore), Valley Iron and Steel (R441 crore), Brahmaputra Metallics (R208 crore) and Pondicherry Tindivinam Tollway (R229 crore).
Ratings agency Crisil estimates the loans restructured by Indian banks will stand at R3.25 lakh crore in financial year 2012-13.
The majority of restructuring will be in loans to the state power utilities (SPUs), and the construction and infrastructure sectors.