Banks saw a lackluster response to the one-time debt recast scheme permitted by the Reserve Bank of India, with the window to invoke restructuring closing today.
CNBC-TV18 learned that as of last week, banks received requests to restructure only Rs 1.22 lakh crores of loans under the scheme. Even in the worst-case scenario, banks don’t expect the total amount to exceed Rs 1.50 lakh crore. This is far lower than what various estimates had suggested.
“Banks have got requests to restructure about Rs 1.22 lakh crores of loans. This is as of a week ago. Even with any last-minute requests coming in, the total amount will not exceed Rs 1.50 lakh crore or so,” said a person in the know.
On August 6, RBI announced a one-time restructuring scheme for borrowers impacted by the pandemic, termed the “Resolution Framework for COVID-19 Related Stress”, under which borrowers with up to 30 days of loans overdue as of March 1, 2020, could seek a debt recast without their account being downgraded to a non-performing asset.
“We have got requests from some thermal power companies, public sector enterprises, a hospitality company from Bangalore, a few others, but not more than 8-10 cases. Shapoorji Pallonji group’s debt restructuring has already been invoked, and Future Group’s request is also under consideration,” said the head of a large public sector bank on the condition of anonymity.
Large corporates, especially, stayed away from the restructuring scheme. Bankers expect no more than 12 accounts, with a debt of more than Rs 1,500 crores, to be restructured under the August 6 scheme.
The expected panel set up by RBI on the recast scheme led by KV Kamath had found that Rs 15.52 lakh crores of debt, forming 29.4 percent of the total corporate debt, was impacted by the pandemic alone. The sectors included retail & wholesale trade, roads, textile, engineering, petroleum & coal products, ports, cements, chemicals, tourism/hotels/restaurants, mining, petrochemical, paper, consumer durables, hospitals, airports, building materials, glass and media and entertainment sectors.
Several agencies like India Ratings ICRA, CRISIL, SBI Research, Macquarie and others had estimated that anywhere between Rs 3-8 lakh crores of loans would have to be restructured by banks.
For instance, India Ratings had estimated Rs 8.4 lakh crore of loans to be recast, SBI Research Rs 7 lakh crore initially, which was revised down later, and Macquarie expected 8-10 percent of the banking sector loans to be restructured.
The actual amount is a fraction of that. “Many corporates who we thought would seek restructuring opted to utilize the additional credit lines made available under the emergency COVID-19 relief line extended by almost all banks. So a lot of them could make do with that, and did not need restructuring,” said the head of another republic sector bank.
Corporates are also hesitant in applying for restructuring because they worry it may impact their ratings.
“Companies don’t want to take on the restructuring tag because it may impact their future fundraising ability with their rating getting downgraded,” added another senior banking executive from a private bank.
“For corporates, it is always a case of strict avoidance as better-rated corporates did not want the tag of restructuring as it could increase their pricing costs with fear of rating downgrade," SBI’s Chief Economist Soumya Kanti Ghosh had noted in his November 11 report. The report also pointed out that’ll an extent, even banks have been able to convince corporate borrowers not to apply for debt restructuring given the “negative externalities."
“Banks want to give this restructuring only to those entities where they believe there is a temporary impact because of COVID19, and if you give this restructuring, then maybe in the next 6 months to a year, maybe they will come back on track and come back to a normal account,” explained Krishnan Sitaraman of CRISIL Ratings.
“Accounts which have had a more permanent impact because of the pandemic, which are unlikely to come back to normal even after 6-12 months – in those cases banks would rather declare them as NPA and take 15 percent provision vs a lower 10 percent provision in the case of restructuring,” Sitaraman added.
Some bankers also believe that the improvement in the economic outlook in the past few months may also have improved prospects for some borrowers, who would have otherwise opted for the recast scheme.
As per the data available in the public domain, banks reported a low demand for restructuring in the second quarter ending September 2020. For instance, the country’s largest lender State Bank of India said it had recast loans of only Rs 6,495 crores as of Q2, and guided for maximum addition of Rs 13,000 crores by December 31.
Similarly, the Union Bank of India said it had recast Rs 3,600 crore of loans as of September, and expected Rs 11,800 crore more by the end of the year. ICICI Bank received requests to restructure Rs 2,100 crore of loans as of September, and Canara Bank Rs 600 crore. Punjab National Bank, which had initially forecast Rs 40,000 crore of restructuring pipeline, said it had received requests to restructure only Rs 2,064 crore of loans as of Q2 and may get a maximum of Rs 18,000 crore of additional loan recast requests by December end.