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With recast requests for Rs 14,000 crore of debt made on a single day — December 31, 2013 — the value of referrals to the corporate debt restructuring (CDR) cell hit an all-time high in the October-December quarter at close to Rs 45,000 crore. The quantum of requests before the CDR cell has now crossed Rs 1 lakh crore so far in FY14 with October seeing restructuring pleas for Rs 22,269 crore.
Given the slowdown in the economy, bankers believe restructuring requests for another Rs 20,000-25,000 crore of borrowings may come in before the year is out. Shree Ganesh Jewellery House, which reported a loss of R1,048 crore for the quarter ended September 30, has sought easier repayment terms for R3,460 crore while ACL Manufacturing has asked for R3,030 crore to be restructured. The Bhubaneswar-based ECL Engineering too has asked for a recast of its borrowings of R1,440 crore, as has DRG Iron and Steel, which wants an amount of R1,670 crore restructured. The October-December quarter saw R44,800 crore worth of loans referred to the cell.
Large cases like that of Gammon India’s R13,500-crore were approved while those like ABG Shipyard’s R11,000 crore were discussed; in all, 11 cases worth R15,589 crore were approved during the quarter. In the July-September period, cases worth over R22,000 crore had been okayed, as per data available from the cell.
In its financial stability report (FSR) released recently, the Reserve Bank of India (RBI) raised serious concerns on the rising quantum of restructured loans. As on September 30, the average stressed asset ratio – the ratio of gross non-performing assets (NPAs) and restructured advances to total assets – stood at 10.2% for the banking system, with state-owned banks accounting for the bigger share. This is much higher than the 9.2% recorded on March 31.
The central bank estimates loans worth R3.25 lakh crore have so far been restructured through the CDR cell and bilaterally together. “Concerns have emerged regarding the large and growing quantum of ‘forborne’ assets and their potential impact on the asset quality of banks,” the central bank said in the FSR.
What’s worrying bankers is that a big chunk of the recast amount, or about R30,000 crore, could go bad given cash flows of companies are severely strained. Some bankers believe that the slippage into NPAs could turn out to be even higher; till last year, the slippage has been roughly 15%.