HYDERABAD: After months of hand wringing, state-run Punjab National Bank (PNB) finally declared the DHFL account as fradulent. This means that PNB has to fully provide for its Rs 3,689 crore exposure to the NBFC, taking a severe knock on its balance sheet.
So far, the bank has made a provision of Rs 1,247 crore. PNB’s disclosure regarding DHFL, which some believe is rather delayed, confirms that the bad loan recognition exercise among banks remains somewhat incomplete following the system-wide asset quality review that began in late 2015.
For DHFL, trouble began in late 2018 and KPMG’s subsequent forensic audit in October 2019 eventually led to its collapse. Yet, lenders sat on the account for several quarters, merely designating it as an NPA. It was only in January that fellow lenders SBI, Union Bank of India and IndusInd Bank ‘red-flagged’ DHFL (given the visible strains of fraud) and have set aside money in line with prudential norms.
But some state-run banks have yet to classify the NBFC as a fraudulent account. Bankers’ reluctance to tag a loan account as fraudulent is understandable as it forces them to provide for the full amount of the exposure, which in turn dents banks’ profitability.
DHFL’s total outstanding debt stood at about Rs 84,000 crore, of which Rs 26,324 crore comprised bank loans, while the remaining included non-convertible debentures (NCDs). The banking industry could see further stress if the allegations of Rs 3,700 crore fraudulent loans from Yes Bank to DHFL stand proven. The CBI has arrested Kapil Wadhawan and Dheeraj Wadhawan, promoters of DHFL citing alleged financial irregularities between the company and Yes Bank.
Meanwhile, having significant exposure, banks tried to implement a resolution plan, even considering converting debt into equity, but the proposal didn’t succeed. Eventually, DHFL landed at the NCLT last December and is undergoing the corporate insolvency resolution process-the first financial services company to go for insolvency under IBC. That said, it’ll be a while before a final outcome and banks get their due.
Worryingly, lenders are likely to see a rash of bad loans in the coming quarters, thanks to Covid-19. According to India Ratings and Research, as much as Rs 1.7 lakh crore debt owed by the top 500 debt-heavy private sector borrowers could turn bad between FY21 and FY22. “This is over and above the Rs 2,54,000 crore anticipated prior to the onset of pandemic, taking the cumulative quantum to Rs 4,21,000 crore,” it noted in its report.
NPAs likely to soar
Lenders are likely to see a rash of bad loans in the coming quarters, thanks to Covid-19. India Ratings and Research says as much as Rs 1.7 lakh crore debt owed by the top 500 debt-heavy private sector borrowers could turn bad between FY21 and FY22