Very few borrowers seek loan restructuring, big fear of NPAs unfounded, says SBI report

Very few of the borrowers have till date applied for restructuring and incrementally such borrowers are likely to be much lower, SBI said in a report on Wednesday.

“This is a notable climb-down from the base case scenario and it is largely a part of the humongous efforts of the banks to redesign the banker and corporate relationship since the unveiling of AQR,” the report said.

Subsequently, the big fear of large slippage in asset quality of banks is unfounded with Indian banks guiding at much lower credit cost than even their Asian counterparts, the report said.

According to the report, only about Rs one lakh crore worth corporate loans may opt for debt restructuring as against the earlier estimate of Rs 7 lakh crore, SBI economists said in a report on Wednesday. In terms of numbers, assuming 15 per cent-20 per cent of the corporates had opted for a moratorium, based on our earlier analysis, the restructuring amount originally envisaged was up to Rs 7 lakh crore.

“We estimate based on our feedback and granular data analysis that only around 15-20 per cent of the companies, from the said amount, may request for a debt restructuring which by most pessimistic estimates could be a maximum up to Rs 1 lakh crore,” SBI analysts said in its report,

However, sectors such as MSME and Agriculture might continue to be in stress for some time and require to be monitored and handheld, SBI report said. “Regarding Agriculture, it seems to be that the KYC update may have been lagging because of lockdown, and a part of this is now getting pulled back,” SBI report said.

RBI announced the one-time debt restructuring scheme for Covid-linked stressed assets as part of its Covid resolution framework. This followed a six months long moratorium announced in March.

SBI report said banks have been largely able to convince the corporates not to go for a restructuring given the negative externalities. “Much credit should be given to RBI in this context as 6 month moratorium on interest and instalment till August resulted in surplus in the hands of borrowers and it gave confidence to the borrowers to service the debt without any restructuring,” SBI report said.

Moreover, the additional debt given as emergency funding to all the borrowers by the banks increased the liquidity in their hands that was further facilitated by significant scaling down of employee and operational costs. In some cases, it is also possible that locked up fund elsewhere was used to repay the debt, the report said.

Indian banks have gross NPAs of around Rs 8 crore-Rs 9 lakh crore at this stage. The RBI has predicted this figure to escalate to 14.7 per cent by March next year in a worst case scenario. The Indian economy is in a steep contraction mode hit by the Covid-19 pandemic. The RBI has projected the economy to contract by 9.5 per cent in the ongoing fiscal year. Banks fear rise in defaults as borrowers struggle to repay their loans.