Banks referred only nine large corporate loan restructuring proposals to the KV Kamath-led Expert Committee under RBI’s resolution framework of August 2020, three people aware of the matter told CNBC-TV18. All of these nine corporate loan recast proposals were subsequently cleared by the committee ahead of its dissolution on June 30, 2021, CNBC-TV18 has learnt.
According to people in the know, the expert committee will soon submit its final report on corporate loan restructuring to the Reserve Bank of India. As per the committee’s report, these nine accounts that were cleared by it had Rs 58,888 crores of loans outstanding, CNBC-Tv18 has learnt. These nine accounts included three Future Group companies- Future Retail, Future Enterprises, and Future Lifestyle. The other accounts included construction services company Patel Engineering, Metals and Minerals Trading Corporation (MMTC), the holding company of 150-year old SP Group- Shapoorji Pallonji and Company Private Limited (SPCPL), Hinduja Group’s Hinduja National Power Corporation Limited, ACB India Limited, and Gurgaon-based Ambience Developers, according to people familiar with the matter.
“We will soon submit the finding of the report to RBI. It should be made public.. The response to restructuring scheme has been very poor from large corporates compared to initial projections given by banks,” said a person directly involved in the making of the report.
The expert committee was constituted by the Reserve Bank of India (RBI) under its August 6 circular on the resolution framework for COVID-19 related stress. The committee had set sector-specific financial parameters to be factored into assumptions by banks while drafting resolution plans for impacted borrowers. It was also tasked with clearing large restructuring proposals which involved a debt of more than Rs 1,500 crore.
“There are several reasons for low demand. There were additional credit facilities that corporates could avail and make do with, so they did not need restructuring. Companies who can also want to avoid the restructuring tag as it may impact their credit rating and borrowing costs may rise further for them” explained a senior bank official. Another bank executive added that most banks have also been conservative on their end to grant restructuring to corporates.
In a report published in November last year, SBI research had pointed out that the six-month moratorium on interest and instalment till August 2020 resulted in a surplus in the hands of borrowers and provided confidence to service their loans without any restructuring. It said that Banks were also able to convince corporate borrowers not to apply for debt restructuring given the negative externalities. As per Soumyakanti Ghosh of SBI, the author of the report, for banks restructuring was a cumbersome and time-consuming exercise with the monitoring costs, higher provisioning and in the extreme case if the account slips, post-recovery mechanism.
The financial stability report of the RBI released recently showed that only 0.9 percent of the total loans were restructured as of March 31, 2021. A back of the envelope calculation shows that this amount would be approximately Rs 88,000 crores. The micro, medium and small enterprises (MSME) sector saw the maximum debt recast at 1.7 percent followed by the corporate loans, which saw 0.9 percent of the sector loan being restructured. The retail segment saw only 0.7 percent of loans restructured.
While the window to restructure large corporate loans has closed, RBI has extended the timeline to recast individual and MSME loans until later this year.