MUMBAI: Given the mounting non-performing assets (NPA) in the Indian banking sector, banks are likely to take a haircut of Rs 2.4 lakh crore, or nearly 60 per cent, to resolve 50 large stressed accounts, said a report by rating agency Crisil on Wednesday.
“Banks may have to take a haircut of 60 per cent, worth Rs 2.4 lakh crore, to settle 50 large stressed assets with debt of Rs 4 lakh crore,” the rating agency said.
These 50 companies are from the metals sector (30 per cent of total debt), construction (25 per cent) and power (15 per cent) sectors, and account for half of the Rs 8 lakh crore NPAs in the banking system as on March 31, 2017.
The haircuts have been classified into four categories – marginal (less than 25 per cent), moderate (25-50 per cent), aggressive (50-75 per cent) and deep (more than 75 per cent).
A quarter of the debt analysed needs marginal or moderate haircuts, while a third needs aggressive, and nearly 40 per cent deep haircuts, the report said.
“Companies from the power sector would require moderate haircuts, while those from the metals and construction sectors would need aggressive ones,” said the rating agency’s chief analytical officer Pawan Agrawal.
A majority of the debt requiring deep haircuts belong to companies with unsustainable businesses so asset sales are necessary to recover monies, Crisil said.
Companies needing moderate or aggressive haircuts had gone for debt-funded capex but demand slumped, and projects ran into regulatory issues leading to significant time and cost overruns that made them unviable.
Companies needing marginal haircut are those facing temporary setbacks, which could be corrected over time, the report added.
“It would be in the larger interest of the economy to pop the bitter pill of haircut than kick the can down the road,” the rating agency said.