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Loan restructurings fail to pull lenders out of misery, Rs 30,000 cr of loans likely to go bad very soon Aftab Ahmed, Vishwanath Nair SUMMARYA fifth of all loans that have been recast, via CDR cell could turn into non-performing assets.| Mumbai | Updated: Nov 15 2013, 08:37 IST

With the economy showing few signs of recovery, as much as Rs 30,000 crore of loans, currently classified as ‘standard’ because they’ve been restructured, could go bad very soon. Given corporates are under severe financial stress in a sluggish demand environment, bankers estimate that a fifth of all loans that have been recast, via the corporate debt restructuring (CDR) cell could turn into non-performing assets (NPAs). This would be higher than the 15% slippage seen from recast loans till last year.

If loans recast bilaterally — between banks and borrowers — are also considered, a little over a 10th could become NPAs. According to VR Iyer, chairman and managing director, Bank of India (BoI), “Of the total restructured amount, about 12% loans are slipping into bad loans.”

RK Goyal, executive director, Central Bank of India, said that since much of restructuring via the CDR cell has happened in the last three years, several borrowers are still enjoying a moratorium. “By next June, several corporates will need to start repaying debt and that’s when the slippages will really increase,” Goyal said.

With banks becoming stricter about offering borrowers more lenient terms — they’re insisting on personal guarantees from promoters and a 25% upfront equity from them — and with promoters not always able to fulfil these requirements, more accounts are turning bad. Indeed, a forensic audit of all cases referred to the CDR cell could soon become compulsory.

SBI chairperson Arundhati Bhhattacharya had on Wednesday observed there was likely to be more pain for the banking sector and had refrained from giving an outlook for the near term.

“We are not seeing indicators that say things are beginning to look brighter,” Bhattacharya had noted after the bank announced results for the September quarter. SBI has restructured close to Rs 13,000 crore in H1FY14 while total slippages – including those from non-recast accounts – were Rs 22,401 crore. For Punjab National Bank (PNB), slippages in H1FY14 were Rs 6,650 crore while for India's largest private sector bank ICICI Bank, they were smaller at Rs 2,116 crore.

Analysts point out the situation could deteriorate. Credit Suisse points out that restructuring was relatively low in Q2 as few large ticket restructurings were pushed to 3Q14 and that the restructuring pipeline is Rs 1500-4000 crore. So far in FY14, referrals to the CDR cell have hit Rs 80,000 crore and with signs of the economy recovering, bankers believe the quantum could easily cross Rs 1 lakh crore this year. Between April and September loans worth Rs 43,273 were recast. Meanwhile, the value of bilateral recasts could exceed that of loans restructured via the CDR cell.

Bank of Baroda saw slippages of Rs 4,620 crore in H1FY14 while the quantum for Punjab National Bank was Rs 6,650 crore. Bank of India’s H1FY14 slippages totalled Rs 3,455 crore. For banks like PNB, restructured loans and bad loans together account for over 10% of total assets while in case of banks like Allahabad Bank and Indian Overseas Bank, problem loans account for 15% and 13% of total loans, respectively. Among accounts referred to CDR and slipped in the in the first half of the year were Winsome Diamonds (Rs 4,000 crore), Abhijeet Corporate Group (Rs 3,113 crore), KS Oils (Rs 2,564 crore), SevenHills Hospitals (RS 1,300 crore) and Varun Industries (Rs 1,900 crore).

http://www.financialexpress.com/news/loan-restructurings-fail-to-pull-lenders-out-of-misery-rs-30000-cr-of-loans-likely-to-go-bad-very-soon/1195101/0