With companies unable to turn their businesses around despite more lenient repayment terms, banks are staring at more toxic assets. In December alone, the failure of six firms to revive their operations added Rs 3,000 crore to the non-performing assets (NPAs) of banks.
The cumulative value of restructured assets at the end of December 2015 stood at Rs 4.03 lakh crore across 530 companies. More than 200 companies that together owed banks Rs 83,552 crore have been unable to revive their businesses.
Among these, the promoters of Ind-Swift Laboratories and Sakthi Sugars had asked for loans to be recast via the corporate debt restructuring (CDR) cell and were allowed easier repayment conditions. However, these firms remain loss-making and have failed to comply with the conditions specified by the CDR cell.
The total value of such ‘failures’ in the first nine months of FY16 has now risen to Rs 26,557 crore. Slippages from restructured assets at ICICI Bank amounted to Rs 1,355 crore in Q3FY16.
Bad loans at Indian banks rose an unprecedented 30% in 3QFY16 following a Reserve Bank of India audit and are likely to move up further to around 6.6% of loans by March16 as most banks deferred the impact over two quarters.
Viney Kumar, chairman, CDR cell, told FE that of the 38 companies whose loan recasts had failed so far in FY16, the majority were from the EPC sector. “While they found it difficult to repay loans, the companies were also stressed when non-fund-based bank guarantees were invoked. That put an additional interest rate burden on the company,” Kumar explained.
According to Credit Suisse, the under-provisioning has gone up sharply with unprovided problem loans for around 60% of banks (by loans) already above 100% with the share likely to move up by March, 2016. NPAs as a percentage of net worth are at 50-70% for the majority of state-owned banks.
RBI data showed NPAs for the banking system had risen to 5.1% at the end of September from 4.6% in March.
Among the main reasons for loan recasts not working out are the inability of promoters to infuse the requisite equity capital in the specified period and a delay in repayments after the moratorium. Restructuring schemes also often fail because promoters are unable to sell non-core assets to mobilise resources.
If a company’s performance, post-recast, exceeds the CDR cell’s projections by 25% or more, it can make a successful exit. If , however, it fails to meet the targets, it is declared a failure.
Among the six companies whose exposures turned NPAs in December were pharmaceutical firm Ind-Swift Laboratories (Rs 950 crore) and Sakthi Sugars (Rs 870 crore).
Ind-Swift, promoted by the Mehta, Munjal and Jain families, reported a net loss of Rs 119 crore in FY15 on the back of Rs 668 crore in revenues largely owing to and interest outgo of Rs 119 crore.
Meanwhile, Sakhti Sugars had posted a net loss of Rs 35 crore in FY15 on the back of Rs 837 crore in revenues and its finance cost was Rs 129 crore. Its bankers include Allahabad Bank, Axis Bank, Bank of India, Indian Overseas Bank, Oriental Bank of Commerce and Punjab National Bank.
In 2014, four other companies, whose total debt obligations of Rs 14,000 crore had been restructured to make it easier for them to repay their loans, exited the CDR cell. 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 asset reconstruction company as they did with Bharati Shipyard (Rs 5,800 crore) and Hotel Leelaventure (Rs 3,000 crore).
The RBI had allowed lenders to classify restructured accounts under the restructured-standard category till March 2015. However, from April banks have been instructed to classify restructured accounts as NPAs and make provisions accordingly.
The CDR cell, which was inundated with requests for loan recasts between FY13 and FY15, has not received any requests so far in FY16. In FY15, the cell approved 54 cases worth Rs 72,560 crore for recast.