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Home Credit Bureau India Loan restructuring to witness an upswing and reach s 3.25 trillion by March 2013: CRISIL

Loan restructuring to witness an upswing and reach s 3.25 trillion by March 2013: CRISIL

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Rating agency Crisil Ltd raised the bar for loans that Indian banks will need to restructure this fiscal year to Rs3.25 trillion from Rs2 trillion, mainly because of the stressed finances of state power companies besides other sectors. Loans of Rs 1.6 trillion have already been restructured in 2011- 12 and in the first quarter of 2012-13.

Mr. Pawan Agrawal, Senior Director, CRISIL Ratings, said “In recent months, availability of unsecured short-term loans from Indian banks has diminished. This is exacerbating refinancing and liquidity pressure, especially for the SPUs. This will lead to a significant increase in restructuring of SPU loans to nearly  Rs.1.5 trillion. So far, SPU loans of Rs.0.6 trillion have been restructured”.  Most likely SPU-loan restructuring will happen through a centralised scheme coordinated by the Government of India (GoI). “Furthermore, inability to raise adequate equity in a timely manner is straining the balance sheets and financial flexibility of developers in infrastructure and construction sectors, resulting in an increased likelihood of restructuring”, adds  Mr. Agrawal. Other vulnerable sectors include iron and steel, textiles, and engineering.

The proportion of restructured loans in this period will be high at around 5.7 per cent of banks' advances as on March 31, 2013. Agrawal said, "Around Rs 0.50 trillion of these restructured loans may slip into NPAs, though this will depend on the terms of restructuring and fundamental viability of the projects and the companies.

These slippages can aggravate the already stressed asset quality of banks by further increasing NPAs by 50 to 75 basis points beyond March 2013." The loans to SPUs are unlikely to slip into NPAs, given the support expected from state and central governments.

Despite continued weak growth and profitability in the corporate sector, the large restructuring will help limit the increase in the banks' NPAs in the near term. According to CRISIL's estimates, the lower GDP growth of 5.5 per cent expected in 2012-13 may result in increase in banks' gross NPAs to 3.5 per cent by end-March 2013 from around 3.0 per cent at the end of June 2012.

The increase will be driven largely by delinquencies in the micro, small and medium enterprises, and agriculture and allied sectors. Suman Chowdhury, director, Crisil Ratings, "The banks have sought to arrest the deterioration in asset quality through measures such as strong senior management focus on recovery, setting up dedicated teams for collections, and tightening of underwriting norms. While the banks' adequate capitalisation, expected support from GoI for public-sector banks, and stable resource profiles will continue to support their credit risk profiles, any significant and sustained deterioration in asset quality and earnings may lead to weakening in the banks' credit quality."

 

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