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Home Credit Bureau India ICRA: Additional provisioning might be required for restructured SEB loans

ICRA: Additional provisioning might be required for restructured SEB loans

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According to a report by rating agency ICRA on the financial restructuring package of state electricity boards, the banks may have to make additional provisions following restructuring of loans and might also need a special dispensation from Reserve Bank of India for not classifying them as bad loan.
 
Restructured assets in the banking system are expected to shrink by 15 per cent from March 2012 levels. 
 
"There could be a NPV loss on restructured advances as post the scheme implementation as rate of interest on these loans could be lower; which would have one time impact on Public Sector Banks' (PSB)' profitability in 2012-13. The provisioning on NPV loss would depend on the rate of interest post restructuring of loans. Additionally banks would need to make around Rs 1500-1600 crore as provisions on restructured advances, part of these provisions could reverse over next five years as the States issue the bonds" the report said.
 
According to the Reserve Bank of India (RBI) data, restructured advances stood at 4.68 per cent of the total standard assets at Rs 2,18,068 crore as on end-March 2012.
 
The Icra report says the government’s restructuring package could subdue the immediate threat of state-owned power discoms’ loans slipping into non-performing assets (NPAs).
 
The rating agency also warns "if tariff revisions or other operational improvement measures are not sustained, we may have only postponed the underlying problem, giving the lenders false sense of low NPAs from SEBs for few more years" the report said.

 

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