The pace at which state-owned banks are restructuring loans is downright scary; for the three months to June, 2012 Canara Bank recast some R6,000 crore, Bank of India some R4,000 crore and Central Bank some R2,600 crore. Smaller banks like Andhra Bank, too, had their share of recasts.
At this rate, the restructured portfolio for the banking system will soon cross 5% of total assets, if it hasn?t already done so. And since some of this is sure to turn toxic, and there?s probably more restructuring to come, it won?t be surprising if the share of npas and recast loans taken together hits 10% of total assets by March next year. Already, there is talk that a large steel company?s interest payments are overdue and the fear is that there could be much more to come.
A fair chunk of the restructuring in recent months has been related to the State Electricity Boards (SEBs) or the telecom and aviation sectors and, of course, several companies like Hotel Leela and HCC have had their debt restructured.
There has also been some amount of stress in agri-loans but the real anxiety arises from the huge piles of debt that a few corporate houses have accumulated in the past few years; a study by Credit Suisse reveals that the aggregate debt of 10 groups has jumped five-fold in the past five years and now comprises 13% of bank loans and 98% of the banking system?s net worth.
The Essar group?s debt is now close to R94,000 crore, the GMR group has borrowed around R33,000 crore, the Lanco group R29,000 crore and the Vedanta group R93,000 crore.
As Credit Suisse points out, in terms of concentration risk, Indian banks now rank higher than most of their Asian and BRIC counterparts. This is an unenviable position to be in and it?s surprising that the Reserve Bank of India(RBI) hasn?t clamped down so far. The prudential norms ? banks can lend up to 15% of their net worth to a single company and 40% to a group ? seem to be rather lenient, particularly in the Indian context where promoters have a nasty habit of routing money, raised in one company, to another.
The central bank finds the concentration of the credit portfolio of banks moderate, at the system level, though it is aware that the degree of concentration is higher in some instances.
The average exposure of banks to the largest group borrower, the RBI data shows, is 4.7% of the total, though the maximum exposure is way higher at 26.1%. A relook at the the prudential norms is surely warranted, given the now rampant restructuring ? the value of loans referred to the CDR cell in July is around R7,500 crore, higher than the R5,500 crore brought to the CDR?s door in June.
In fact, even as the restructuring norms are being reworked to ensure that promoters pick up their fair share of the tab, the central bank needs to tighten prudential norms to make sure banks aren?t over-exposed to a company or a group.
It may not have become dangerous just yet, but the trend right now isn?t encouraging ;in 2011-12, over 20% of the incremental loans came from just 10 groups. That cannot be healthy for our banks.