Faced with the prospect of a sharp increase in non-performing assets (NPAs), banks are allowing companies easier terms of repayment. Loans recast in the July-September quarter totalled R22,650 crore, topping the R21,266 restructured in the three months to June.
As at the end of June, the total value of loans restructured by the corporate debt restructuring cell (CDR) was R2.50 lakh crore. As a share of the total loans given by banks, recast loans now account for 4.9%. The ratio of NPAs to total loans is approximately 4.5%. A recent report by Macquarie cited the head of the CDR cell as conceding that the stress in the system is not moderating. The head is understood to have said that restructuring proposals were unlikely to ease meaningfully in the near term.
Macquarie has pointed out that the CDR restructuring comprised just 30% of the overall restructuring in the last two years. In other words, the bulk of the recasts, including that for state electricity boards, has been done bilaterally.
The CDR cell was inundated with requests for loan recasts in the September quarter with several small and mid-sized firms approaching it for more lenient terms. However, the quantum of cases referred was smaller at R26,000 crore compared with R39,521 crore in the June quarter.
In September alone, 10 companies with outstandings of over R17,000 crore were allowed easier conditions to repay their dues. Apart from Electrosteel Steels (R6,461 crore), Bombay Rayon (R4,277 crore) and Arch Pharmaceuticals (R2,711 crore), a large number of smaller companies like Jyothi Infrastructure (R790 crore), Abhijeet Ferrotech (R675 crore) and Gangotri Enterprises (R590 crore) were also given more time to repay their loans.
A few months ago, the Reserve Bank of India (RBI) tightened the provisioning and other norms for restructured loans, making it costlier for banks and insisting that promoters furnish personal guarantees. RBI governor Raghuram Rajan has observed that promoters do not have a divine right to stay in charge regardless of how badly they mismanage an enterprise, nor do they have the right to use banking system to recapitalise their failed ventures. For a company's debt recast to be approved, 60% of the banks that have loaned money and banks that have loaned at least 75% of the total amount must agree to the restructuring.