Non-performing assets (npas) for a clutch of banks have gone up by close to R5,500 crore in April, on account of nine failed loan recasts.
Non-performing assets (npas) for a clutch of banks have gone up by close to Rs 5,500 crore in April, on account of nine failed loan recasts. The total value of failed restructurings in FY16 stood at Rs 31,557 crore, data from the Corporate Debt Restructuring (CDR) cell shows. Among the large recasts that came a cropper in April were ARSS Infrastructure Projects (Rs 1,300 crore), Surana Corporation (Rs 1,100 crore), Shiva Texfab (Rs 800 crore) and Teracom (Rs 680 crore).
Adding to the pre-existing pool of bad loans, major banks have reported slippages from their restructured book in Q4 of FY16. While at Punjab National Bank (PNB), Rs 15,000-crore loans from the restructured book slipped into NPA, at ICICI Bank they amounted to Rs 2,700 crore.
Among the main reasons for debt recasts 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.
Odisha-based construction company ARSS Infrastructure Projects reported a net profit of R6.2 crore in FY15 on the back of Rs 660.9 crore in revenues.
In Q3 of FY16, its net loss stood at Rs 25 crore on the back of Rs 190 crore in revenues. Lenders to the company include State Bank of India (SBI), IDBI Bank, ICICI Bank, Bank of India (BoI) and Exim Bank. In September 2012, the company’s debt was recast by the CDR cell.
The other large CDR failure was Surana Corporation, engaged in manufacture, wholesaling, retailing and export of jewellery. Its debt of `1547.15 crore was recast under the CDR mechanism in November 2014 and re-payments rescheduled over a 10-year period up to 2024. In Q3 FY16, it reported a net loss of Rs 92 crore on the back of Rs 212 crore in revenues.
Viney Kumar, chairman of the CDR cell, recently explained to FE that if the company’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, were unable to turn around their operations. 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 an npa.
They can also sell the loan to an ARC as they have done with Bharti Shipyard (Rs 5,800 crore) and Hotel Leelaventure (Rs 3,000 crore).
Till March 2015, the Reserve Bank of India (RBI) had allowed lenders to classify restructured accounts under the restructured-standard category. However, since then 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, did not receive any recast requests 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.