NPA woes: Banks recast Rs 11,000cr of loans in July

Saikat Das
moneycontrol.com

Banks continue to struggle with stressed assets as the economy slows. Lenders have referred 19 loan recast cases worth Rs 11,000 crore to the corporate debt restructuring (CDR) cell in July, a banker associated with the exercise of debt restructuring told moneycontrol.com. Compare this with the April-June quarter, when 29 cases worth Rs 15,000 crore (an average of Rs 5000 crore a month) were referred to the CDR. Two small size companies including Ind-Swift Laboratories (about Rs 1,200 crore credit exposure), a pharmaceutical entity and NITCO (nearly at Rs 1,266 crore), a manufacturer and distributor of tiles led the list of troubled firms in July.

State-owned Punjab National Bank (PNB) and State Bank of India (SBI) were the lead lenders in those two referred cases, which would be admitted by the CDR cell on Wednesday. PNB loaned around Rs 373 crore to NITCO followed by SBI at Rs 256 crore. India’s largest lender extended credit of Rs 309 crore to Ind-Swift, followed by State Bank of Patiala at Rs 200 crore, Bank of India at Rs 150 crore.

The spike in the value of bad loans in a single month has raised fears that the pace of defaults could accelerate in the coming months, as the economy grapples with a clutch of problems, both local and global.

Already, the Reserve Bank of India has lowered its GDP growth forecast for the current fiscal to 6.5% from 7.3% earlier.

The CDR cell used to register only 7-10 cases per year during 2004-07. The aggregate debt (since the beginning) of referred cases (including the latest numbers) may come around Rs 2.38 lakh crore.  Under the regulatory frame work of the Reserve Bank of India (RBI), the CDR cell is a joint forum, which caters to an official platform for both the creditors and borrowers to amicably evolve policies for restructuring debt. 

Loan restructuring is the process when a borrower is unable to make timely repayments and approaches the lender to dilute the original terms under which the loan was sanctioned. This could include lowering of interest rates, or extension of tenure.

“Banks are going an extra mile to refer their defaulting loan accounts to CDR cell after the RBI came out with draft guidelines on debt restructuring,” said a senior banker who did not wish to be named.

“Many hidden cases are likely to appear in the current year. This is just to skip the new regulatory clutches provided those are finalized,” the banker said.

A couple of weeks back, a working group set up by RBI recommended to adopt global best practices on restructured loans after two years. In the run up to that, after two years, an account will also lose its stand asset status once it is recast and slip into non-performing asset. Moreover, provisioning requirement should increase from 2.0-3.5-5.0% gradually for restructured standard assets in between two years.

However, new norms are yet to be finalized. Rating agency Crisil estimated that bad loans would rise to Rs.2 lakh crore or 3.2 per cent of the total assets by March, 2013.  The restructured standard assets, according to the central bank data, were at Rs 97,834 crore in March 2010 and Rs 1,06,859 crore in March 2011. Those were higher than the gross non-performing assets (NPAs) of the banking system at Rs 81,816 crore and Rs 94,088 crore respectively during the respective period.

saikat.das@network18online.com