Even after a couple of rough quarters, during which banks have restructured loans close to R50,000 crore, the pace of recasts may not ease. That?s because only about a third of banks? total exposure to state electricity boards (SEBs) of close to R3 lakh crore has been recast and more could come their way. Moreover, analysts are also concerned about banks? exposure to private sector power producers.
Late last year, Crisil had pointed out that approximately R56,000 crore of loan exposure to the power sector could be at risk unless state governments hiked tariffs. While several states including Tamil Nadu and Maharashtra have increased tariffs, there is nonetheless a fairly large gap between the cost and selling prices. In a recent report, Kotak Institutional Equities noted that the continued inability on the part of the government as also companies to address challenges in the power sector may result in significant non-performing loans over the next two to three years. ?Our calculations suggest that about 40-50 GW of new power capacity in the power generation segment could be in danger of defaulting on their debt obligations,? the report said.
Not only is more recasting anticipated, there could also be slippages in the restructured portfolios as well. For instance, while the borrowings of Kingfisher Airlines, at close to R8,000 crore, have been restructured, the airline posted losses of R650 crore in the three months to June even as it operates barely a fourth of its fleet. As such, say analysts, it is possible the company may soon not be in a position to service its borrowings.
Going by the candidates lining up before the corporate debt restructuring (CDR) cell, companies across sectors ? from mining to hospitality ? are now asking for more lenient repayment terms. State Bank of India (SBI) chairman Pratip Chaudhuri had observed after the bank?s quarterly results were announced that around R3,000 crore was waiting to be restructured. In the three months to June, SBI restructured about R560 crore. Chaudhuri, however, believes that sectors like mining are seeing some improvement while a weaker rupee is starting to help textile exports. ICICI Bank restructured only R350 crore worth of assets in the April-June quarter.
Public sector lender Bank of Baroda has restructured around 40% of its exposure to SEBs and the incremental recast may not be significant. However, Union Bank may need to work out easier payment options for around R3,000 worth of debt to SEBs. Already in the June quarter, the bank reworked payment terms for R1,200 crore of SEB exposure. While indicating that repayment terms for another R300 crore worth of loans may be reworked in the current quarter, Andhra Bank CMD B Prabhakar believes that the amount could vary, given the uncertainty in areas like textiles and agriculture. Andhra Bank restructured R751 crore worth of loans in the April-June quarter. Restructured loans today already account for approximately 5% of the banking system?s assets compared with a ratio of close to 3.7% at the end of June 2011. Crisil estimates that the value of loans likely to be restructured by banks over 2011-12 and 2012-13 could hit R2 lakh crore. The asset quality of state-owned banks deteriorated sharply in the June 2012 quarter.
For a sample of 26 banks, gross non-performing assets rose 62% y-o-y and accounted for 3.54% of assets while net NPAs rose 78% year-on-year and accounted for 1.83% of assets. As analysts point out, a sluggish economy, with GDP for 2012-13 estimated to grow at around 5.5%, could lead to a worsening of asset quality. The trend could be aggravated by a less-than-normal monsoon.