Covid-19 impact: Union Bank estimates 6-7% of loans may be restructured

Public sector lender Union Bank of India estimates 6-7 per cent of its loans (over Rs 36,000 crore) maybe restructured under the Reserve Bank of India’s (RBI’s) scheme for borrowers adversely impacted by the Covid-19 pandemic.

Rajkiran Rai G, managing director and chief executive, Union Bank of India, said the bank had conducted an internal exercise. These are rough estimates (6-7 per cent) and could change, based on parameters that the K V Kamath Committee will firm up. A clearer picture will emerge after the end of the September quarter.

The restructuring business will be done through three buckets — corporate, micro, small and medium enterprises (MSMEs), and the retail segment. Only standard advances, including dues up to 30 days, will be eligible for restructuring under the RBI’s scheme.

Union Bank of India’s gross advances stood at Rs 6.5 trillion at the end of June. These cover the loan portfolio of Andhra Bank and Corporation Bank, both of which merged with Union Bank on April 1.

According to India Ratings & Research (Ind-Ra), banks in India may restructure loans worth Rs 8.4 trillion, or about 7.7 per cent of total credit as of March, to manage the financial stress caused by the pandemic.

These loans include corporate accounts, where Rs 6.3 trillion of credit may be recast, and non-corporate accounts (Rs 2.1 trillion), such as retail, agriculture, and MSME. The amount to be recast could be higher, if restructuring in the non-corporate segment exceeds 1.9 per cent of the bank credit, said Ind-Ra.

The RBI has formed a five-member expert panel headed by former ICICI Bank chairman K V Kamath, which will make recommendations on the required financial parameters to be factored in the resolution plans. It will indicate sector-specific benchmark ranges for such parameters. It will also vet Kamath’s resolution plans for aggregate exposure above Rs 1,500 crore.

Rai said in the corporate segment very few large accounts are likely to come up for recast. Most of the cashflow will come from the medium-sized segment (Rs 100-1,000-crore loan exposure per client). The MSME accounts will be taken up under the existing scheme by the RBI.

As for the retail segment, about 7-8 per cent of the retail loan book may need reworking. The board of directors has already approved a policy for retail debt recast. The bank expects maximum work on it to be done in September-October, said Rai.