 "HDFC Bank sells Rs 550 crore Essar Steel loans at 40% discount")
HDFC Bank, India's second largest private sector lender, has sold its entire exposure of Rs 550 crore given to Essar Steel to an asset reconstruction company. According to market players, the loan was sold at a 40 per cent discount. The loss of Rs 200 crore was fully provided through HDFC Bank's floating provisions. The loan was sold for the consideration of both security receipts and cash.
A consortium of 24 banks had a Rs 30,000-crore exposure to Essar Steel. According to bankers, HDFC Bank decided to exit, while the loan was restructured by the joint lenders forum (JLF).
The HDFC Bank move indicates the lender’s unwillingness to be part of the consortium and lend further. During their post-earnings conference call, the bank’s management indicated that, they did not have any such large cases that will require such large write-offs. The lender reported 20.6 per cent rise in the net profit to Rs 2,807 crore in the January-March quarter, driven by 20.6 per cent growth in loan book. The bank reported stable net interest margins with healthy asset quality with net NPA remaining at 0.2 per cent of the net advances and gross NPA at 0.9 per cent — the lowest among its peers.
The loan has been restructured and continues to be standard. For standard restructured advances, banks were mandated to provide 5 per cent. However, from April 1, banks need to make provision in line with bad loan for standard restructured assets. The debt recast of the Essar Steel account was undertaken in the fourth quarter of the last financial year.
While HDFC Bank said they do not comment on customer-centric queries, Essar Steel declined to comment on the issue.
Analysts cautioned about domino impact in the mind of investors’ due to the decision of HDFC Bank because there are other steel companies that are also facing debt servicing challenges.
A consortium of 24 banks had a Rs 30,000-crore exposure to Essar Steel. According to bankers, HDFC Bank decided to exit, while the loan was restructured by the joint lenders forum (JLF).
The HDFC Bank move indicates the lender’s unwillingness to be part of the consortium and lend further. During their post-earnings conference call, the bank’s management indicated that, they did not have any such large cases that will require such large write-offs. The lender reported 20.6 per cent rise in the net profit to Rs 2,807 crore in the January-March quarter, driven by 20.6 per cent growth in loan book. The bank reported stable net interest margins with healthy asset quality with net NPA remaining at 0.2 per cent of the net advances and gross NPA at 0.9 per cent — the lowest among its peers.
More From This Section
Major lenders such as State Bank of India, ICICI Bank, IDBI Bank and Punjab National Bank also have an exposure to the steel major but none of them has exited from the company. During the post-earnings (January-March ) conference call, the ICICI Bank management said they have not sold any loan to asset reconstruction companies.
The loan has been restructured and continues to be standard. For standard restructured advances, banks were mandated to provide 5 per cent. However, from April 1, banks need to make provision in line with bad loan for standard restructured assets. The debt recast of the Essar Steel account was undertaken in the fourth quarter of the last financial year.
While HDFC Bank said they do not comment on customer-centric queries, Essar Steel declined to comment on the issue.
Analysts cautioned about domino impact in the mind of investors’ due to the decision of HDFC Bank because there are other steel companies that are also facing debt servicing challenges.