Public sector banks restructured more accounts in the September quarter with several large banks reporting an increase in the incremental restructuring. Analyst presentations of six public sector banks show that four have seen a rise in the incremental restructuring.
Punjab National Bank restructured Rs 3,297 crore in Q2FY15, which was more than double the amount, Rs 1,452 crore, it had restructured in the previous quarter. The bank’s gross NPAs at Rs 20,752 crore were 5.9% higher than the June quarter.
Bank of Baroda’s loan recasts rose 19% q-o-q to Rs 1,175 crore. Executive director P Srinivas said that even after monitoring accounts and forming the joint lenders’ forum (JLF), the absence of recovery in the economy had hampered the asset quality. Central Bank of India and Union Bank of India saw a sequential rise of 73% and 100%, respectively, in Q2FY15. Bank of India and Canara Bank saw restructuring dip sequentially.
“The asset quality depends on the cash flow and the economic activity. We were expecting the economic activity and consumer demand to improve by the second or third quarter, but that didn’t happen,” said Srinivas.
At present, banks either restructure the loan through a JLF or through the corporate debt restructuring (CDR) cell. The JLF is a part of a new stress assessment system put in place by the RBI. At such forums, consortium of banks meet after the interest payment on the loan is due for more than 60 days and suggests measures to rectify the stress.
Banks, at present, have to provide 5% of the outstanding value of the loan in case of a restructured account. However, a sub-standard account attracts higher provisioning at 15% for the secured exposure and 25% for the unsecured part.
In the first seven months of FY15, banks referred loans worth Rs 18,120 crore for recast and have restructured Rs 40,050-crore loans.
CDR cell chairman RK Bansal told FE that he expects referrals to the cell to increase in the last quarter of FY15 in a last attempt by banks to save such accounts from being classified as NPAs.
To add to the woes, PSBs’ bad loans pressure has not eased as their gross NPAs rose 8.8% sequentially to Rs 1.85 lakh crore in the September quarter. The figure does not take into account State Bank of India data, whose Q2 results are yet to be announced. SBI’s gross NPAs stood at Rs 60,434 in the June quarter. Bansal said that even after March, restructuring will continue. “This is because if you have to protect the value of an asset, there in no other way in our system other than restructuring.”
India Ratings and Research estimates the restructuring amount in the banking system to go up by Rs 60,000 to Rs 1 lakh crore in next five months.
The agency expects banks to consider taking decisive steps on their corporate accounts, which may have been servicing their debt with some delay, as the process of the RBI’s regulatory forbearance ends in March.