Loan restructuring to touch Rs 2 trillion by FY13: CRISIL
Large corporate exposures to form a sizeable portion of restructured loans, says CRISIL Ratings
April 24, 2012 / 19:04 IST
Large corporate exposures to form a sizeable portion of restructured loans, says CRISIL Ratings
CRISIL expects the pressure on Indian banks' asset quality to continue in 2012-13 (refers to financial year, April 1 to March 31), as indicated by the increased loan restructuring and non-performing assets (NPAs) in the sector. The total amount of loans that are likely to be restructured by banks over 2011-12 and 2012-13 is estimated at nearly Rs.2.0 trillion. A sizeable proportion of the restructuring comprises large-ticket corporate exposures; total restructured loans will account for 3.5 per cent of the total advances as at March 2013. Furthermore, banks' gross NPAs are set to increase to 3.2 per cent by March 2013, from 2.9 per cent as at December 2011.The large quantum of restructuring reflects the prevailing stress on corporate India’s credit quality because of lower profitability, weak demand, and tight liquidity (refer to CRISIL's release, ‘Default rates at ten-year high of 3.4 per cent', dated April 3, 2012). CRISIL believes that sectors with large debt are particularly vulnerable to restructuring. Nearly 30 per cent of the restructuring is expected in the power sector, which is consistent with CRISIL's expectation (refer to CRISIL’s release, 'Tangible reforms critical for power sector lenders’ health’, dated October 19, 2011). The other susceptible sectors include aviation, construction, engineering, steel, textiles, and telecom infrastructure. Loans of Rs.750 billion were either restructured or their restructuring was underway during nine months ended December 2011.Says Mr. Ramraj Pai, President, CRISIL Ratings, "The nature of current restructuring is qualitatively different from that in 2008-09 and 2009-10. The loans restructured earlier were smaller and represented small and medium enterprise (SME) accounts. In the current phase, the loans being restructured are large corporate exposures; over two-thirds of the loans restructured till December 2011 had ticket size of over Rs.10 billion, reflecting a high level of concentration."Such large quantum of restructuring will help restrict the increase in banks’ reported NPAs - the gross NPAs are expected to marginally increase to 3.2 per cent as at March 2013 from 2.9 per cent as at December 2011. The increase in NPAs reflects the expectation of slippages in the agriculture and SME portfolios. However, any significant reduction in estimated GDP growth of 7 per cent for 2012-13 could lead to further increase in gross NPAs to 3.5 per cent by March 2013. Given the large ticket size of the restructured loans, slippages of even 20 per cent, similar to that witnessed in the past, could lead to further increase in gross NPAs by over 50 basis points over the medium term.Banks are strengthening their collection and recovery mechanisms to offset asset quality pressures. Mr. Suman Chowdhury, Director, CRISIL Ratings, says, "The banks' comfortable capital position has so far provided an adequate cushion against these challenges. The credit risk profiles of public sector banks remain underpinned by expectation of continued support from the Government of India, which has invested and committed capital of over Rs.500 billion in these banks between 2009-10 and 2012-13. However, any sustained deterioration in banks' asset quality will be monitored."Disclaimer: CRISIL has taken due care and caution in preparing this Press Release. Information has been obtained by CRISIL from sources which it considers reliable. However, CRISIL does not guarantee the accuracy, adequacy or completeness of information on which this Press Release is based and is not responsible for any errors or omissions or for the results obtained from the use of this Press Release. CRISIL, especially states that it has no financial liability whatsoever to the subscribers/ users/ transmitters/ distributors of this Press Release.The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.To read the full report click on the attachment 
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