RBI norms may exclude several cos from loan recast scheme

Mumbai: The RBI’s norms on corporate loan restructuring are likely to exclude a large number of companies as bankers expect advances worth only Rs 2-3 lakh crore will qualify for recast.
A five-member committee headed by K V Kamath, constituted by the RBI to look into the parameters within which restructuring can be allowed, has submitted its recommendation to the central bank and lenders will approach their boards once the report is released.
Bankers said corporates that have been lax in repayments before March 2020 will not qualify for restructuring even if they are not non-performing assets (NPAs). Bankers expect only 2-3% of overall bank loans to be eligible for restructuring.
India Ratings has said that 7.7% of bank loans (Rs 8.4 lakh crore) would need a restructuring of which non-corporate would be just 1.9%. The rating agency also said that loans of over Rs 5 lakh crore would slip into NPA if they are not restructured.
The RBI circular notifying the Covid resolution framework and appointing the expert committee had said that only those borrower accounts, which were classified as standard and not in default for more than 30 days with the lending institution as on March 1, 2020, will be eligible for resolution under this framework.
Bankers said that a large portion of the stress in the banking system has been addressed through the insolvency and bankruptcy code (IBC). Borrowers that were facing stress even before the pandemic have been excluded because of the 30-day overdue clause. Bankers said that stressed corporates typically delay payments and make use of the headroom available even as they avoid the NPA tag. This means that only those businesses that were doing well before lockdown, but are facing trouble due to Covid will be entertained. These include hospitality and retail real estate, as malls have seen zero revenue during the lockdown. It also includes build-operate-transfer projects such as toll roads, where revenues disappeared in the initial months.
Some well-performing power projects were also hit because of the state government’s ability to pay for power in time. Those hit by global disruptions includes the gems and jewellery segment and the textile sector, which were hit by global disruptions.
According to India Ratings’s analysis of corporates across 35 sectors, the restructuring quantum from the corporate sector in FY21 could range between 3%-5.8% of the banking credit amounting to Rs 3.3-6.3 lakh crore.
“Even stressed assets that may not slip in the near term could be restructured as Covid would have aggravated stress. Nearly 53% of this pool is at a high probability of restructuring/slippages. The balance 47% is at moderate risk of restructuring, and the progress on these accounts will depend upon the progress of Covid situation,” the rating agency said.
While a high proportion of the debt from the real estate, airlines, hotels, and other consumer discretionary sectors is likely to be restructured, the largest contribution would be from infrastructure, power, and construction, India Ratings said.



[Source – Times Of India]

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