 "SDR may impact credit growth by FY18")
Success of SDR is not clear given that RBI ended its corporate debt restructuring (CDR) scheme on an unsuccessful note. Religare in its report noted that the failure of CDR ballooned from 23 per cent in September 2013 to 36 per cent in September 2015. Further for SDR to be successful, banks need to find new promoters for the companies within the 18-months window and this would require restoring viability and generating investor interest in such companies. According to a Credit Suisse report, this would need banks to take significant haircut in debts and this may be tough as debt to market capitalisation of stressed companies is estimated at 15 to 50 times. Agreeing with this, Abhishek Bhattacharya, Associate Director, Ind-Ra Ratings feels SDR may not be a viable solution given today's state of affairs. "Most of the stressed corporates are highly levered and SDR would only provide a temporary solution".
Analysts at Religare estimate that SDR may postpone the recognition of non-performing assets (NPA) worth Rs 1,50,000 crore, given than one-fourth of restructured assets under CDR may again be restructured through SDR. SDR has been exercised on loans worth Rs 81,300 crore (mostly in infrastructure and metals sectors). With RBI directing banks to clean up their books by March 2017, and banks continuing to fund interest and working capital costs during the 18-months period, NPA levels are bound to shoot up.
Secondly, shares acquired by banks through SDR are exempt from RBI's restrictions on capital market exposures. Experts feel this would dilute business of banks and they consider it a departure from core banking operations, as banks are not in the business of running companies.
To counter this, Bhattacharya suggests that banks need to incorporate risk from large stressed corporates by building up adequate capital buffers. That said, in the near-term, it looks like lenders such as SBI, PNB, BOB and ICICI having exposure to SDR may have a bitter pill to swallow.
