 "Banks rush for debt recast")
Except in a few sectors, loan restructuring will no longer enjoy leniency on asset treatment and provisioning. Banks can continue to do this but such loans will be treated as non-performing assets (NPAs). So, the provisioning burden on the balance sheet will go up. At present, restructured loans need a provision of five per cent of their total value. Under the new regime, recast loans could be treated as sub-standard, the first level of an NPA, with the obligation to make a provision of 15 per cent.
The sectors which could throw up a higher number of recast cases are infrastructure, power, iron and steel, construction and textiles. These top the number of cases and in the amount recast under Corporate Debt Restructuring (CDR). They accounted for 157 of the 288 live cases, accounting for 64 per cent of the debt in question (Rs 1,73,824 crore) by end-December 2014, according to CDR Forum data.
Rating agency ICRA, in a conference call for its banking sector review, said referrals to the CDR Cell declined in April-December 2014 as against April-December 2013. However, restructuring outside the CDR Cell remained high. This could remain elevated in the fourth quarter of 2014-15, with regulatory forbearance to go away from FY16. While banks restructured assets worth Rs 25,000 crore in the third quarter, this could go up to Rs 40,000- 50,000 crore in the fourth quarter, ending March, according to Vibha Batra, senior vice-president and group head for financial sector ratings at ICRA.
SBI sets trend
The country’s largest lender, State Bank of India, has set the tone for the January-March quarter. Its pipeline for restructuring will be up to Rs 5,500 crore in the quarter. The bank preferred to be generous while giving its forecast (‘guidance’), to accommodate any rush of cases before the forbearance window closes. Its internal target is Rs 3,800 crore. SBI’s restructured book was Rs 66,704 crore in end-December 2014.
Arundhati Bhattacharya, SBI chairman, said it (guidance of Rs 5,000-5,500 crore) was a bit on the higher side. “This is because we do not know what will happen in this quarter. When a particular window (forbearance) is closing, there is a little bit of rush. I am taking that into consideration,” she said.
A similar story is playing out at other large commercial banks like ICICI. The loan restructuring pipeline there is Rs 2,300 crore. Additions to this in the third quarter were Rs 1,755 crore.
“Asset quality deteriorated during the quarter. However, the management has been saying restructuring would swell before the provisioning arbitrage goes, between the sub-standard and restructured portfolio,” said Saday Sinha, banking analyst with Kotak Securities, after an earnings conference call with the ICICI Bank management for the October-December quarter.
Axis, the country’s third largest private sector bank, expects gross stress addition of Rs 6,500 crore in FY15, of which Rs 3,539 crore was done in the first three quarters. Though gross stress additions in these three quarters was much lower than the guidance given by the bank, the management hasn’t revised it. Its net restructured loans stood at Rs 6,808 crore.
There seems less pressure on the books of Delhi-based Punjab National Bank. The pipeline to be recast under CDR in Q4 is Rs 600 crore and there is no indication of a rise in the pool till now, said a PNB executive.
Firm on new regime
Despite banks’ plea to relax the window for the new restructuring norms and extend the forbearance regime beyond March, the Reserve Bank of India has firmly ruled this out. RBI governor Raghuram Rajan, soon after the earlier monetary policy review, said the forbearance regime had to end, to build confidence in bank balance sheets.
“RBI has given enormous amounts of new flexibility in trying to put distressed projects back on track. It is important to clean up bank balance sheets. They should show what they actually contain,” he said.