Non-performing assets (NPAs) for a clutch of banks have risen by about R9,000 crore in the three months to June solely on account of 15 failed recasts, reports Shayan Ghosh in Mumbai. Among the larger recasts to have failed were those of Arch Pharmalabs (R2,200 crore), ARSS Infrastructure Projects (R1,300 crore) and Surana Corporation (R1,100 crore). In 2015-16, the total value of failed restructurings was R31,557 crore, data from the corporate debt restructuring (CDR) cell show.
Adding to the pre-existing pool of bad loans, banks reported slippages from their restructured book in Q4FY16. At Punjab National Bank, R15,000 crore loans from the restructured book slipped into NPAs while at ICICI Bank these amounted to R2,700 crore. Among the main reasons debt for restructurings not working out are the inability of promoters to infuse the requisite equity capital 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.
Mumbai-based construction company Arch Pharmalabs, whose debt was taken up for recast in April 2013, reported a net profit of R415 crore in FY14 on the back of R571 crore in revenues. Several lenders including United Bank of India and L&T Finance, among others, have filed winding-up petitions against the company. Viney Kumar, chairman of the CDR cell, had explained to FE that if the company’s performance exceeds the projections by 25% or more, the company is identified for a successful exit but if it failed to meet the projections, it would be declared a failure.
Odisha-based construction company ARSS Infrastructure Projects reported a net profit of R5 crore in FY16 on the back of R631 crore in revenues. Lenders to the company include State Bank of India, IDBI Bank, ICICI Bank, Bank of India and Exim Bank. In September 2012, the company’s debt was recast by the CDR cell.
In 2014, four other companies, with a total debt obligation of R14,000 crore that had been restructured to make it easier for them to repay their loans, failed at 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 Bharti Shipyard (R5,800 crore) and Hotel Leelaventure (R3,000 crore).
The Reserve Bank of India (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, 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 R72,560 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 two-to-three-year moratorium on interest payments.