By Ankur Mishra
Banks are more likely to declare confused accounts as non-performing property (NPAs) within the second half of the present monetary yr somewhat than present reduction to debtors below debt restructuring scheme, sources within the know of the matter advised FE. Many lenders together with State Bank of India (SBI) have guided for a decrease restructuring estimate until December 2020. A analysis report of SBI additionally stated that banks could also be dissuading company debtors from restructuring their loans.
“Even though we have to do 15% provisioning for declaring NPAs, compared to 10% in the debt restructuring scheme, we find the former a better option in many cases,” stated a financial institution official who didn’t want to be named. Explaining the rationale, he stated that regardless that banks have to offer solely 10% for recasting a mortgage below debt restructuring scheme, the reversal of provisioning will take loads of time. A borrower must make 30% debt reimbursement to financial institution for reversing the entire provisioning, as per August 6 round of Reserve Bank of India (RBI). While, if the financial institution declares an account as NPA, the borrower nonetheless has an choice of availing debt restructuring below June 2019 round of RBI, he added.
“You compare it with June 7 circular, where there is an NPA and you do restructuring, you need to make a 15% provisioning. But it will be upgraded, if the borrower just pays 10% of the amount,” he stated. Not solely this, however now we have to go along with all of the stringent procedures for offering debt restructuring to debtors, he added.
Sanjeev Agarwal, companion, offers, PwC stated that present debt restructuring round of the regulator has an issue, as it’s delaying the reversal of the provisioning for the banks as in comparison with regular NPA restructuring. The Reserve Bank of India (RBI) had earlier allowed restructuring of non-public and company loans strictly for the debtors impacted by the pandemic.
“In case, one time restructurings are not actively invoked for resolution, there would be a large number of rating downgrades in January, 2021 and NPAs may rise from fourth quarter (Q4) of the current financial year,” Agarwal stated. Till then, any firm which had taken 6 months moratorium can keep away from NPA state of affairs by cost of one-month curiosity, he added.
Similarly, Anil Gupta, sector head, monetary sector rankings, ICRA stated that the slippages within the second half of the yr (H2) can be far more than within the first half (H1). “The slippage rate in H1 of the financial year was less than 1%, and by the end of the year we see it to go up at 3.1-3.7% for financial year 2021, “ he said.
The chairman of the largest lender State Bank of India (SBI), Dinesh Kumar Khara had earlier said that the bank has received requests for restructuring of Rs 6,495 crore loans so far. Furthermore, the lender is expecting additional restructuring requests of Rs 13,000 crore by December, 2020. As per estimates, debt restructuring will be less than 1% of SBI’s total advances of Rs 23.85 lakh crore. Similarly, Punjab National Bank (PNB) and Union Bank of India have halved their targets for restructuring to less than 3% of the loan book.
“If you go by the commentary of management of banks in the second quarter (Q2) results, 5-8% restructuring as per our estimates may look slightly on the higher side, but definitely 3-5% cannot be ruled out,” Gupta stated. However, it’s nonetheless early days and clear image will emerge by December-January, he added.