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With banks resorting to restructuring debt to delay the formation of non-performing assets (NPAs), the performance of the corporate debt restructuring (CDR) cell has taken a hit.
For the first time in five years, the number of cases referred to the CDR cell and withdrawn on account of failure (even after restructuring, the accounts slipped into the NPA category) exceeded the number of successful cases, latest data from the CDR cell showed. A total of 103 cases worth Rs 24,915 crore slipped into the NPA category till September, compared with 67 cases aggregating Rs 51,104 crore that were upgraded to standard category.
“For the first time in the last five years, cases withdrawn on account of failure are higher than the cases exited successfully. The majority of the slippages were on account of non-payment (interest and principal repayments),” broking firm Macquarie said in a note to clients.
Bankers said the number of cases slipping into the NPA category had increased in the last couple of years. For some state-run banks, 18-20 per cent of their restructured loans are slipping into the NPA category, against 10 per cent two years ago.
“Small accounts populate the failed cases. Banks show more urgency to give support to large units, as the cost of failure could be high. Also, big units have managerial capability to make changes and bring in required contribution. Small units suffer from managerial deficiency and their capacity to ride through adverse times is limited,” said a senior State Bank of India official.
To stop misuse of the CDR mechanism, a Reserve Bank of India committee headed by Executive Director B Mahapatra had recommended from April 2015, banks don’t enjoy regulatory forbearance while recasting debt. It suggested from April 2015, all restructured assets attract provisioning of 15 per cent. Currently, after restructuring, a loan continues to remain a standard asset, subject to certain conditions. Restructured standard assets have a provisioning requirement of five per cent, compared with 0.4 per cent for standard advances.
In October, seven cases worth about Rs 22,000 crore were referred to the CDR cell, compared with cases worth Rs 24,900 crore in the quarter ended September. In the first quarter, cases worth Rs 39,400 crore were referred.
Some of the cases referred to the CDR cell this quarter include ABG Shipyard (Rs 10,000 crore), Era Infra (Rs 5,200 crore), Coastal Projects (Rs 3,800 crore) and Gujarat NRE Coke (Rs 2,200 crore). Companies approaching the CDR cell were primarily from the power, roads, construction and small and medium iron & steel sectors.
The CDR cell data doesn’t include bilateral restructuring between banks and companies. In the past two years, CDR restructuring accounted for only 30 per cent of the overall restructuring.
Public sector banks have accounted for most of the debt restructuring, though a few large private banks, excluding HDFC Bank, are also facing a similar situation.
“With regard to asset quality, the problems seem to be concentrated to old-generation banks—public sector banks and old private banks. I would urge the managements of these banks to be sensitive about this trend and to be more willing to recognise the problem at the initial stages so that an early resolution can be found to the NPA problem,” RBI Deputy Governor K C Chakrabarty had said recently. The central bank is also mulling incentives to banks that detect asset quality pressures early.
