Apr 06 2012 , Chennai
Most CDRs take place in manufacturing, telecom, aviation sectors; private players too affected
Officials at public sector banks have been meeting corporate clients more often over the past two-three quarters than they used to do any other time in recent memory.
With high
Public sector banks have been restructuring corporate loans to various sectors such as manufacturing, telecom and aviation in a big way to ensure that they do not end up landing in their bad loan books.
Public sector banks have been restructuring corporate loans to various sectors such as manufacturing, telecom and aviation in a big way to ensure that they do not end up landing in their bad loan books.
State Bank of India has restructured loans to the tune of over Rs 3,000 crore till the third quarter of this financial year, while Punjab National Bank and Indian Bank have restructured loans of over Rs 6,000 crore.
“I would be lying if I say that there is no concern over asset quality. There is some stress on asset quality and some accounts have gone for corporate debt restructuring. The situation is not alarming though.
“I would be lying if I say that there is no concern over asset quality. There is some stress on asset quality and some accounts have gone for corporate debt restructuring. The situation is not alarming though.
We have restructured loans to the tune of Rs 400 crore in the fourth quarter alone,” said TM Bhasin, chairman of Indian Bank.
Usually nationalised banks perform loan restructuring in a big way since they are the ones who lend significantly to businesses.
Usually nationalised banks perform loan restructuring in a big way since they are the ones who lend significantly to businesses.
Private banks largely lend to retail borrowers. Defying that belief, players like ICICI Bank went for restructuring of loans to the tune of Rs 1,300 crore in Q4 alone.
“Of the total number of loans restructured, usually about 20 per cent end up becoming NPAs. In many cases, restructuring helps genuine borrowers come out of bad times and repay the loans.
“Of the total number of loans restructured, usually about 20 per cent end up becoming NPAs. In many cases, restructuring helps genuine borrowers come out of bad times and repay the loans.
There will be slippages, but it does not appear to be alarming at this point of time,” said Vaibhav Agarwal, a banking analyst at Angel Broking.
However, Indian Overseas Bank chairman M Narendra pegged the slippage levels of restructured loans even lower at 4-5 per cent.
“Restructuring does not mean the quality of asset is bad, but it could be because of a slowdown in cash flow, lower profitability or lower sales. In such cases, restructuring becomes essential.
However, Indian Overseas Bank chairman M Narendra pegged the slippage levels of restructured loans even lower at 4-5 per cent.
“Restructuring does not mean the quality of asset is bad, but it could be because of a slowdown in cash flow, lower profitability or lower sales. In such cases, restructuring becomes essential.
It only means that the repayment tenure is being extended. Out of 100 accounts that are restructured, only 4-5 tend to become NPAs,” Narendra claims.
Sectors such as power, aviation and telecom have been the biggest party poopers for banks in 2011-12 and a large part of the restructuring has happened in these sectors, bankers said.
“Exposure to the struggling sectors such as aviation and state power utilities may be restructured in 2012 together with growing exposure to infrastructure projects that face teething troubles.
Sectors such as power, aviation and telecom have been the biggest party poopers for banks in 2011-12 and a large part of the restructuring has happened in these sectors, bankers said.
“Exposure to the struggling sectors such as aviation and state power utilities may be restructured in 2012 together with growing exposure to infrastructure projects that face teething troubles.
As a result, banks may see the share of loans restructured in 2011 and 2012 rise to 7-8 per cent of loans, significantly higher than 4.4 per cent seen in the aftermath of the 2008 crisis,” Fitch Ratings said in its outlook for the banking sector in 2012.
As credit offtake has not been significant over the past few months, banks had to exercise caution over existing assets and the focus naturally shifted to credit monitoring, reasoned a senior official at Punjab National Bank.
With the Q4 numbers of banks yet to be out, it remains to be seen if the restructuring efforts need to continue going forward and if slippages into NPAs has increased.
As credit offtake has not been significant over the past few months, banks had to exercise caution over existing assets and the focus naturally shifted to credit monitoring, reasoned a senior official at Punjab National Bank.
With the Q4 numbers of banks yet to be out, it remains to be seen if the restructuring efforts need to continue going forward and if slippages into NPAs has increased.
A lot would depend on what happens on April 17, when RBI would announce its annual monetary policy review for 2012-13 and possibly, a much-awaited interest rate cut.
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