Mumbai: In an indication of stress on corporate balance sheets, the quantum of loans approved for recast by the corporate debt restructuring (CDR) cell rose nearly 35% to R1,50,225 crore by end of March, 2012, over the previous year. The actual amount of debt restructured during 2011-12 was R39,311 crore, 500% more than the previous year. Moreover, cases worth an an additional R35,878 crore are under process.
The sharp increase has been fuelled by the deterioration in balance sheets of companies in sectors like telecom and aviation. Data from the CDR show debt referred to the cell was as much as R2,05,692 crore at the end of March 2012, up 48% over March 2011. Several infrastructure companies have approached the CDR cell; the amount approved for recast in this space grew to R17,080 crore at the end of December 2011 from R5,166 crore at the end of March, 2011. Among companies whose debt has been restructured during the year are Air India, GTL, Hindustan Construction Company, Moser Baer and Hotel Leela.
Had the loans not been restructured and the borrowers offered more lenient terms for repayment, banks may have had to classify them as bad loans or non-performing assets (NPAs). At the end of December, 2011, Union Bank had restructured assets worth R8,643 crore, translating into 5.5% of assets. State Bank of India had R31,000 crore of restructured loans while Bank of Baroda’s restructured loans totalled R9,545 crore.
Restructured assets at Bank of Baroda (BoB) were up 27% sequentially in the three months to December 2011 and accounted for 3.8% of the loan book.
Punjab National Bank (PNB), which recast loans to a couple of State Electricity Board (SEBs), had restructured loans of R15,550 crore.
Kotak Institutional Equities expects credit costs to remain high in the March quarter, similar to that in the December quarter, due to above average slippages and provisions for restructured loans.
“The Street’s focus would continue to remain on restructured loans as well as slippages from large accounts. Select SEBs and aviation sector will likely get restructured in the current quarter which should result in increase in overall restructured loans for public banks,” Kotak noted.
Banks are making attempts to recover bad loans and recoveries from the agricultural space are expected to be good. The deputy governor of the RBI Anand Sinha had recently commented on NPAs saying ‘the situation is under control but there is an underlying reality that is not very comfortable’, also pointing out that gross NPAs are rising. The RBI has been stressing on the need for counter-cyclical provisioning which would help reduce volatility in bank earnings. The central bank recently released a discussion paper on the framework for dynamic provisioning.
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