Debt recast to touch Rs 3.25 lakh crore

Debt recast to touch Rs 3.25 lakh crore

Majority of restructuring will be in loans to SPUs, construction and infra sectors

Loans restructured by domestic banks may increase sharply to Rs 3.25 lakh crore between 2011-12 (refers to financial year, April 1 to March 31) and 2012-13 against the earlier estimate of Rs 2 lakh crore, as per international rating agency CRISIL.

The rating agency said loans of Rs 1.6 lakh crore have already been restructured in 2011-12 and in the first quarter of 2012-13. The rise is a result of significantly higher funding challenges being faced by companies with large debt, it added.

Further, CRISIL said the majority of restructuring will be in loans to the state power utilities (SPUs), and the construction and infrastructure sectors.

CRISIL Ratings Senior Director Pawan Agrawal said the availability of unsecured short-term loans from Indian banks has diminished in recent months. “This is exacerbating refinancing and liquidity pressure, especially for the SPUs.

It will lead to a significant increase in restructuring of SPU loans to nearly Rs 1.5 lakh crore. So far, SPU loans of Rs 0.6 lakh crore have been restructured.”

Most likely, Agrawal continued, SPU-loan restructuring will happen through a centralised scheme coordinated by the Government of India. Further, he said: “The inability to raise adequate equity in a timely manner is straining the balance sheets and financial flexibility of developers in infrastructure and construction sectors, resulting in an increased likelihood of restructuring.” Other vulnerable sectors include iron and steel, textiles, and engineering.

The proportion of restructured loans in this period will be high at around 5.7 per cent of banks’ advances as on March 31, 2013.

“Around Rs 0.50 lakh crore of these restructured loans may slip into NPAs, though this will depend on the terms of restructuring and fundamental viability of the projects and the companies. These slippages can aggravate the already stressed asset quality of banks by further increasing NPAs by 50 to 75 basis points beyond March 2013,” added Agrawal.

The loans to SPUs are unlikely to slip into NPAs, given the support expected from state and central governments, said CRISIL. Despite continued weak growth and profitability in the corporate sector, the large restructuring will help limit the increase in the banks’ NPAs in the near term.

According to CRISIL’s estimates, the lower GDP growth of 5.5 per cent expected in 2012-13 may result in increase in banks’ gross NPAs to 3.5 per cent by end-March 2013 from around 3 per cent at the end of June 2012. The increase will be driven largely by delinquencies in the micro, small and medium enterprises, and agriculture and allied sectors.

CRISIL Ratings Director Suman Chowdhury avers, “The banks have sought to arrest the deterioration in asset quality through measures such as strong senior management focus on recovery, setting up dedicated teams for collections, and tightening of underwriting norms.

While banks’ adequate capitalisation, expected support from the government for public-sector banks, and stable resource profiles will continue to support their credit risk profiles, any significant and sustained deterioration in asset quality and earnings may lead to weakening in banks’ credit quality.”

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