Nomura pegs total stressed assets at Rs 16.30 lakh crore

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Mumbai | August 30, 2018 2:53 AM

Nomura says the provisioning and haircuts on the additional accounts to be referred to the National Company Law Tribunal could be large. Some of the power sector assets could see haircuts higher than 75%.

The total stress in the Indian banking sector, including write-offs, is likely to be around Rs 16.30 lakh crore, and the provisioning and haircuts on the additional accounts to be referred to the National Company Law Tribunal (NCLT) could be large, Nomura said.

The total stress in the Indian banking sector, including write-offs, is likely to be around Rs 16.30 lakh crore, and the provisioning and haircuts on the additional accounts to be referred to the National Company Law Tribunal (NCLT) could be large, Nomura said.

Some of the power sector assets could see haircuts higher than 75%, it added.

After the Reserve Bank of India’s (RBI) deadline for resolution of stressed assets above Rs 2,000 crore came to an end on August 27, and the Allahabad High Court refused to provide any relief to the power companies, banks will have to file for insolvency proceedings for assets worth nearly Rs 3.5 lakh crore over the next two weeks.

Of these, assets worth Rs 1 lakh crore could see a resolution before being referred to the NCLT. “The key issue here could be the lack of bidders and, hence, very high loss given default (LGD),” Nomura Global Markets said in a recent note to clients. Nomura had increased its estimate for LGD, or the amount of money a bank loses when a borrower defaults, on total stressed loans to 65% from 60% after the notification of the February 12 RBI circular.

Of the additional assets, nearly Rs 2 lakh crore is from the power sector.

While bankers have indicated that they have possible resolution plans for Rs 70,000 crore of power sector assets, the rest will have to be referred to the National Company Law Tribunal.

“With such a large number of accounts being referred to the NCLT and limited bidders available in the power sector, the key risk remains near-scrap salvage value in some of these assets (higher than 75% haircut),” Nomura added.

The haircut on power sector assets that are close to a resolution could be around 50-60%. Bankers and industry experts fear that if the power sector assets are referred to the NCLT, they will lose their power purchase agreements, and then it would be even more difficult to find a buyer for the asset.

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