Markets have begun to sound bugle for turnaround in economic sentiment but there is no let up in number of companies knocking door of lenders’ to restructure their debt.
Corporates have been hit hard by slowdown, rise in interest and input costs. About 69 companies with loans worth Rs 37,547 crore, were referred to corporate debt restructuring (CDR) in April-September 2012, according to CDR cell data.
During April-September 2011, lenders had referred 35 cases involving debt of in excess of Rs 24,000 crore. The steel and textiles units, partly hit by slump in demand from Europe, continue to lead the pack of cases. Most of the companies are seeking longer repayment period, revision in interest rate and some sacrifice in revenues (for lenders). There is also element of commitment from promoters to infuse funds, said public sector bank executives.
| CASES REFERRED TO CDR CELL | ||||
| First half of FY13 | ||||
| Q1 (Apr-Jun 2012) | Rs 18,003 cr | |||
| Q2 (Jul-Sep 2012) | Rs 19,544 cr | (38 cases) | ||
| First half Total | Rs 37,547 cr | (69 cases) | ||
| Source: CDR cell | ||||
| Mar 2009 | Mar 2010 | Mar 2011 | Mar 2012 | |
| Gross advances (Rs cr) | 2,793,572 | 3,271,896 | 4,012,079 | 4,655,271 |
| Gross NPA* | 2.44% | 2.50% | 2.35% | 2.94% |
| Restructured standard assets* | 2.16% | 2.99% | 2.66% | 4.68% |
| *As per cent of gross advances Source: RBI | ||||
The objective of the CDR framework is to ensure timely and transparent mechanism to recast the corporate debts of viable entities facing problems.
With every passing day, overall amount of debt going to repair is growing significantly. In September, the central government has cleared a scheme to restructure loans of Rs 1,900,000 crore of ailing state power distribution companies. The government has also announced a debt restructuring package for loans worth Rs 35,000 crore. RBI and government are working out details.
Rating agency CRISIL (on August 30, 2012) had said that loans restructured by Indian banks may increase sharply to Rs 3,25,000 crore between 2011-12 and 2012-13. This is upward revision from the earlier estimate (April 2012) of Rs 200,000 crore by March 2013.
Reserve Bank of India has already raised flag on sharp rise in the cases referred for recast in the current and previous fiscal years. This trend has raised questions whether it is due to a general downturn or gross misuse of the mechanism by banks and corporate borrowers.
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RBI panel (headed by its executive director B Mahapatra) has suggested a higher provisioning by banks for restructured loans. It also recommended onus on promoters to cough up more money as contribution. The implications of deteriorating corporate health are far more for public sector banks which have over 70 per cent share in banking business. The hit on PSU banks book is larger at 30 per cent of book given NPA shortfalls and higher restructuring. Though banks have begun to cut lending rates after RBI reduced its key policy rate it will take a while to see reduction in interest costs (for SMEs and companies).
The year gone by (2011-12) saw over huge growth in amount of loans referred to CDR cell at about Rs 80,000 crore from about Rs 25,000 crore in 2010-11.