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Jun 25, 2012, 09.50 AM IST
There is no respite for banks’ rising bad loans. Consequently, the number of corporate debt restructuring (CDR) cases continues to scale up. In April, 2012; it recorded 15 such cases valuing more than Rs 6,000 crore. Here is what a report by Kotak Institutional Equities says:
There is no respite for banks as they grapple with the problem of rising bad loans amid a slowing economy. Consequently, the number of corporate debt restructuring (CDR) cases continues to increase. In April, 2012; another 15 cases worth Rs 6000 crore were referred to the CDR cell. 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.
"Continued lax lending practices and inability by governments companies and banks to recognize the deep rooted nature of the problems may aggravate the NPL (non-performing liabilities) situation in the banking sector. The central government efforts to address to coal supply and pricing challenges is quite timid. State governments’ inability to raise tariff will result in demand being artificially suppressed and likely surplus power."
"Meanwhile, banks continue to lend to projects without a guaranteed fuel supply arrangement in the hope that the situation will magically resolve itself. We wonder how this practice came about in the first place."
Some of the key concerns about banks' asset quality as stated by the report:
* Indian banks have been very lenient about lending to certain companies and groups without taking cognizance of their weak financials
* Restructuring of loans is hardly a solution, in our view, without addressing the fundamental causes of the problem.
* Power sector poses maximum risk to NPLs of the banking system
* Loans of a fewer power generation companies have been restructured so far.
* About 40-50 GW of new power capacity in the power generation segment could be in danger of defaulting on their debt obligations.
* PSU banks have restructured about 34% of their loans to State Electricity Boards (SEBs). We expect the number to increase.
* We are worried about mounting stress in the banking sector without determined efforts to ease stress.
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