Debt recast scheme failing, NPAs may cross Rs 30K crore

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Mumbai | Published: February 24, 2015 8:19:43 AM

Troubled cases rise to 121 in four years, bankers fear more to come..

non-performing assets, Corporate Debt RestructuringThe trend of restructured assets slipping into NPAs is expected to continue for another 2-3 quarters. (Reuters)

After non-performing assets, it is now the turn of restructured debt packages that have got banks worried.

Debt restructuring packages of 121 companies with loans of over Rs 30,000 crore have failed during the last four years, and banks fear that number is set for a sharp rise in the coming months.

Figures available with the Corporate Debt Restructuring (CDR) cell of banks — considered as the “intensive care unit” for financially troubled corporates — show that CDR packages of 86 companies with loans of Rs 14,000 crore failed in 2013-14. In 2012-13, 12 CDR cases for Rs 4,300 crore and in 2011-12, 9 cases for Rs 3,000 crore failed.

These CDR packages failed — from virtually zero to Rs 30,000 crore in four years — even after banks doled out interest rate cuts, moratorium on repayment and in some cases even a haircut by the lenders. After taking into account the stressed loan cases withdrawn from the CDR mechanism, the total amount involved in unsuccessful restructuring comes to Rs 50,104 crore, says the CDR Cell of banks, created under the RBI’s regulatory framework.

RK Bansal, chairman of the Cell said, “One worry is that in cases which we have restructured failure rates might go up. We have noticed that failure rates had gone up during the last year. This is partly because these cases were restructured during 2011-12 and 2012-13.”

“They were based on some projections that the economy will do well and demand will rise etc. In some cases it was not possible to comply with or achieve that,” Bansal said.

Banks had gone overboard in estimating demand and the promoters’ capability in bringing money.

There are two options when a company’s CDR package fails to click. “One is the company perhaps needs another package if it is viable. But as per the RBI guidelines, if it is a second restructuring then it becomes an NPA. The second option before the bank is legal action,” Bansal said.

Some of the top corporates whose CDR packages failed include Bharati Shipyard (Rs 3,500 crore), Hotel Leela (Rs 3,000 crore), Electrotherm, Jayabharat Textiles and Surya Pharma.

While announcing the Q3 results, ICICI Bank MD & CEO Chanda Kochhar said the bank’s fresh slippages stood at Rs 2,279 crore during quarter, with almost Rs 776 crore, coming from advances restructured in the past.

The trend of restructured assets slipping into NPAs is expected to continue for another 2-3 quarters.

“The government needs to amend the Sarfaesi Act and tighten rules governing debt recovery tribunals to speed up recoveries,” said the chairman of a nationalised bank.

Rs65,295 crore proposals rejected, Winsome, Shree Ganesh lead list

The CDR cell of banks has rejected / closed before approval as many as 121 proposals for debt restructuring worth around Rs 65,295 crore.

“Many of these cases are wilful defaults and fund diversion. “We need a tough law to tackle such wilful defaulters,” he said.

Two such cases are that of Winsome Diamonds and Shree Ganesh Jewellery where banks conducted a forensic audit and found evidence of fund diversion. The application was rejected.

“We need a tough law to tackle such wilful defaulters,” a senior banker said.

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