Indian restructured loans may jump as much as eight times as companies and lenders take advantage of a relaxation in central bank regulations, Bank of America- Merrill Lynch said.
The Reserve Bank of India’s (RBI) extension to June 30 of rules allowing banks to help companies struggling to repay debt may result in restructured loans surging by six to eight times to about 2.5 per cent to 3 per cent of loans in the current financial year, the e-mailed report said.
“Many companies are keen to take advantage of the relaxed RBI norms,” Mumbai-based analysts Rajeev Varma and Veekesh Gandhi wrote. “Banks are also willing to do the same — with a view to lower non-performing loans and lower earnings hits.”
Asian companies hurt by the effects of the global credit crunch are making changes to debt payments, either by buying back bonds at discounts or renegotiating terms with lenders. In August, RBI began permitting banks to restructure loans for companies struggling to make payments, and extended the eased rules on January 2.
Drug maker Wockhardt that targeted sales of $1 billion in 2009, last month said it sought to restructure its debt and delayed its earnings announcement. Unitech, the country’s second-biggest developer, in January paid or won extensions on about 75 per cent of the Rs 2,500 crore in loans due by March after struggling to sell stakes to investors for more than a year.
The central bank in January also raised the lending target for the year ended March 31 to 24 per cent, from an earlier forecast of 20 per cent, to give local companies greater access to funding after credit markets seized up.
An increase in restructured loans means there could be an “understatement” of non-performing loans, which may result in better-than-expected earnings for the banks, according to the analysts. “Bank earnings could surprise in the ensuing quarter due to lower credit costs,” they said in the report.
