CHENNAI: ARE banks under pressure to get bad loans off their books?
If latest data is anything to go by, scheduled commercial banks haven’t approached the Corporate Debt Restructuring (CDR) cell in the past 12 months to recast even one loan account.
CDR cell is a voluntary non-statutory mechanism covering projects for which credit is disbursed by multiple banks and where outstanding aggregate exposure is above Rs 10 crore.
A loan turns into an NPA when the borrower fails to pay interest for 90 days in succession. Usually, banks lend additional capital, which will allow the borrower to keep up with interest payments. In severe non-payment cases, banks recast loan terms providing a much-needed breather to pursue project development.
The number of cases referred to the CDR cell as on March, 2016 stood at 655 with an aggregate debt of Rs 4,74,002 crore - much the same as on March, 2015. In fact the number of cases hit a 3-year low in FY15 at Rs 44,014 crore. A year before, it was Rs 1.3 lakh crore, while in FY13 and FY12, it was Rs 91,497 crore and Rs 67,889 crore respectively.
This lack of restructuring debt contradicts bank’s version that not all loans are bad, but turned sour due to regulatory delays or economic slowdown. If projects are viable, it then begs the question as to why banks haven’t moved the CDR system to recast debt and continue to keep the money tap open. Instead, lenders seem to be classifying loans as NPAs. The downside is, once a loan is categorised bad, credit flow stops at once, thus stifling viability of the project.
Restructuring allows borrowers with relaxed interest rates and repayment schedules. But approvals take longer as multiple lenders have to agree on mutual terms, but this delay affects both companies and banks. “If the CDR package comes through quickly, companies can save interest outgo, which usually eats into operating profits. Prolonged delays could turn debt into a bad loan for banks,” a Lanco Infra official had informed Express. Lanco, knocked the CDR cell in 2013-2014 to revamp Rs 7,300 crore with a consortium of 25 lenders but took nearly two years to conclude.
As on March, 2016, CDR cell has 655 cases with a total debt of Rs 4.7 lakh crore. Of this, just five sectors namely infrastructure, iron & steel, engineering, EPC, and construction comprised a lion’s share of 65% of the total cases. Iron and steel topped the list comprising 21.24% with an aggregate debt of Rs 53,580 crore.