Starting April 1, the category called "restructured assets" will not be available to banks. They have to classify stressed accounts as non performing loans (NPLs), and make higher provisions. But despite the March 31 deadline drawing near, banks are not rushing to restructure before the window closes.
There is no doubt that there is very high stress in the banking system when it comes to the bad loans, with some banks reporting almost 6 percent rise in non-performing loans (NPLs), which is very worrying.
Last year the number of cases referred to the Corporate Debt Restructuring or CDR cell was 101, worth about Rs 1.3 lakh crore. However, this year so far, the number of cases that have been referred are only 25 which amounts to about Rs 23,000 crore. This figure is not even one fifth of the number of recasts that happened last year and although there is one more month to go for the March quarter to end, bankers are not expecting a rush in restructuring.
Why this is surprising is because the “restructured assets” category will not be available for banks starting April 1st, and considering that deadline is about a month away, banks do not seem too keen on making use of the window available till that time, as was widely expected. Remember when the new norms kick in, banks will have to classify restructured assets as bad loans, and set aside more capital as buffer or make higher provisions.
The primary reason why this is happening is because under the new JLF, or Joint Lenders Forum, guidelines, banks are now forced to take corrective action for cases where repayment is due for over 60 days, where it has to do a viability study and decide the next course of action.
Another reason, industry sources say, is that most of the companies that were under stress have already gone into restructuring in the past couple of years, when the infra industry especially was the worst hit.
Thirdly, banks are also in a wait and watch mode as they are expecting some sort of a turnaround in the economy and a revival of sorts in the second half of this year, and hence hoping some of these accounts will start performing.
Lastly, as we saw in the last quarter, a bulk of restructured assets have already tipped into the NPL category, for example, even for an ICICI Banks, almost half of the PLS came from restructured category, and that’s the worry with most banks that restructuring may not solve the problem.
That said, some large cases were referred to the CDR cell this year, and over 51 thousand crores of assets are under restructuring with the CDR cell currently. So high stress in the system remains, but bankers clearly feel restructuring will not be the way out.
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