Recasts hit banks in third quarter as companies face financial stress

Bank

Banks got little respite from loan restructuring woes in the October-December quarter as financial stress on corporates continued to affect their ability to service loans.

Bankers say restructured loans remain an overhang, especially in sectors like power, construction, steel, paper mills and hotels that have been affected by issues ranging from raw material linkages to stretched working capital cycles.

An HSBC report notes that loan recasts are likely to continue in 2013-14 at similar levels and improve thereafter. "Gas-based power projects and ultra-mega power plants (UMPPs) are likely to see the first set of restructuring. First-time commercial vehicle users appear likely to face repayment stresses," the report adds.

There has been some moderation in the size of loan recasts as compared with two-three quarters ago, as many chunky accounts have already been recast in previous quarters. Among the large corporates whose loans were recently recast are Hotel Leela, Bharti Shipyard, GTL, Suzlon, Air India and HCC.

The corporate debt restructuring (CDR) cell, which recasts large-sized consortium loans, recast accounts valued at Rs 13,100 crore in October-December quarter compared with Rs 31,400-crore worth of accounts recast in the previous quarter.

State Bank of India (SBI) restructured accounts of Rs 2,840 crore in the quarter compared with Rs 4,694 crore in the previous quarter. However, the bank expects a further Rs 3,700 crore (excluding Suzlon's Rs 1,300 crore) to be recast in the January-March quarter.

SBI chairman Pratip Chaudhuri, during the bank's third quarter results conference on Thursday, said asset quality worries for the bank has peaked. "This year was a challenging year as there was continued stress on asset quality. But we are coming to the end of that stress," he said.

Some bankers, however, warn that they could be in for further pain in the coming quarters as far as recasts are concerned. A Canara Bank official said that the last quarter of 2012-13 could see a sharp rise in restructuring cases as the new RBI loan restructuring norms with a higher provisioning of 5 per cent will likely kick-in from April.

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