Corporate India’s balance sheets are getting increasingly stressed as companies struggle with the slowdown. And banks are bearing the brunt of it. Loans worth a whopping Rs 52,000 crore have been referred to the corporate debt restructuring (CDR) cell between April and November this year and that’s after R50,000 crore of debt having been recast in the first six months of the year. Several large companies have sought lenient terms after their businesses turned weaker. These include Hotel Leela, Bharti Shipyard, GTL and HCC.
Bankers say requests continue to pour in: the CDR cell received requests worth R3,000 crore in November from six companies requesting easier terms. Among these are Parabolic Drugs, Jai Hind Projects and Biltube Industries.
In 2011-12, R39,300 crore of loans were restructured as companies sought easier repayment terms from banks. October saw the largest quantum of referrals so far in 2012-13 at about R14,000 crore; in September, loans worth R7,000 crore were brought to the CDR cell.
The central bank’s new guidelines on restructured assets, based on the recommendations of the Mahapatra Committee, are expected in end-January. The panel has suggested that promoters make a bigger sacrifice to the tune of 15% of the fall in fair value or 2% of the restructured amount, whichever is higher. The RBI group also feels the conversion of loans into preference shares of the company should be done only as a last resort and conversion of the part of loan into preference shares must be capped at around 10%. The RBI had in October increased the provisions on restructured loans from 2% to 2.75%.
According to an ICRA report, standard restructured advances could move up to R3.7-4.2 lakh crore or 6.5-7.5% of advances by March 31, 2013 against R2.3 lakh crore as on March 31, 2012. It also notes that around 40-50% of banking sector exposure to the power sector may need to be restructured. The report goes on to state that gross non-performing assets levels for the banking industry are likely to cross R2 lakh crore and reach 3.6-3.8% of gross advances as on March 31, 2013, up from 2.8% as on March 31, 2012.
As much as 15-20% of new referrals are cases seeking a second admission to the CDR cell. A second round of restructuring generally occurs when the first round of restructuring fails to help the company. It therefore requires further moratorium and debt infusion to revive the business.
If one were to include CDR cases previously restructured bilaterally between banks and corporates (outside the CDR cell), this would take the tally of cases seeking second restructuring to much higher levels. A recent note from brokerage firm Prabhudas Lilladher, which emerged after a meeting with the CDR cell, states that a large proportion (greater than 50%) of the incremental cases being referred now are second restructuring cases.
Between its inception in 2001 till the end of this financial year, the CDR cell will have successfully negotiated exits of 80 cases worth over Rs 60,000 crore. While there were 57 exits valued at Rs 43,077 crore till September this year, another 25 cases valued at close to Rs 18,000-20,000 crore are in the exit pipeline for the remaining two quarters of 2012-13.