The high exposure of Indian lenders to commodities and, particularly the metal sector, is likely to add to their asset quality woes, Credit Suisse said in a report, adding that bank loans to the steel sector have grown at 21% CAGR over the past five years and now account for 4-9% of their loan books.
The report said as of FY14, 54% of steel sector exposure is to corporates where debt was more than six times its Ebitda and around 30% of the exposure is to corporates with debt more than 12 times its Ebitda.
“SBI, PNB, Yes Bank and Bank of Baroda have the highest exposure to these stressed steel corporates. Exposures to these stressed steel companies are around 10-30% of net worth for our coverage banks,” it said.
Compared to regional peers with metal sector exposure at 8-30% of total net worth, Indian banks’ exposure is more than 50% of net worth.
Credit Suisse noted that steel companies have aggressively expanded their capacities even as demand conditions have been weakening, resulting in utilisations coming down and expected to fall further. “As a result, debt to Ebitda for the sector ex-large players has gone up to 18 times from six times in FY07 even as steel prices increased during most of this period,” it said.
According to the report, total outstanding restructured loans from the metals sector at risk of turning NPA stand at $10 billion or 8% of system net worth.