You are here: Home » Finance » News » Banks

Banks crack whip on debt rejig

Govt asks lenders to focus on all defaulters not just high-profile ones

Banks have given a stern message to companies under debt restructuring, especially steel firms: Shape up or ship out.

The government has asked the lenders to focus on recoveries from all defaulters, and not just high-profile ones.

An executive with a public sector bank said there were a few meetings, at State Bank of India (SBI) headquarters, where some accounts were reviewed as part of a two-day lenders' meeting that started on Monday.

Kingfisher Airlines' accounts were not discussed. The accounts discussed included those of Bhushan Steel, Visa Steel, and Electrosteel Steels. Bhushan Steel's lenders had not opted for strategic debt restructuring (SDR), where a group of lenders converts a part of a loan in an ailing company into stock, with the group owning at least 51 per cent stake. Lenders to Visa Steel and Electrosteel Steels had decided on SDR.

Debt restructuring plans were already being implemented. The meeting was to ensure these plans stayed on course.

An SBI executive said with a minimum import price (MIP) for products, steel firms, especially ones with integrated units, would benefit over time. The government had slapped MIP to discourage reported steel dumping by China.

Banks have been patient and flexible in rescheduling loans and are even giving additional facilities to stressed borrowers to help them. "The assessment is the margins of steel players would be better, giving them the ability to pay over," said an executive with a large public sector bank.

Outstanding bank credit to the iron and steel sector grew at 11.8 per cent to Rs 3,03,700 crore in the 12 months to January. Steel is one of the most stressed sectors, with 52 cases of exposure worth Rs 54,051 crore being handled by the corporate debt restructuring (CDR) cell.

The message from the government has been clear: Keep up pressure on defaulters for recovery.

The loan meeting comes after the central bank carried out a review of several banks and asked them to recognise certain assets as non-performing ones. The central bank later said it was working with the government and banks so that stressed assets could be recognised on an active basis.

This was to ensure a bank's balance sheet reflected a true and fair picture and was adequately provisioned.

On bad loans, rating agency CRISIL had last week said a sharp rise in amounts to be set aside for stressed loans could force nine or 10 of the 26 public sector banks (PSBs) to report losses in the next financial year. Besides the provisioning, factors such as a dent in interest income, the new regime to price loans and the scheme to revive power distribution companies (discoms) might shave off 10 basis points from their net interest margin. On Thursday, the rating agency effected a major rating action - downgrades and change in outlook - on bonds of PSBs. They will continue to have asset quality problems in 2016-17, it said.

image
Business Standard
177 22
Business Standard

Banks crack whip on debt rejig

Govt asks lenders to focus on all defaulters not just high-profile ones

Abhijit Lele  |  Mumbai 



Banks crack whip on debt rejig

Banks have given a stern message to companies under debt restructuring, especially steel firms: Shape up or ship out.

The government has asked the lenders to focus on recoveries from all defaulters, and not just high-profile ones.



An executive with a public sector bank said there were a few meetings, at State Bank of India (SBI) headquarters, where some accounts were reviewed as part of a two-day lenders' meeting that started on Monday.

Kingfisher Airlines' accounts were not discussed. The accounts discussed included those of Bhushan Steel, Visa Steel, and Electrosteel Steels. Bhushan Steel's lenders had not opted for strategic debt restructuring (SDR), where a group of lenders converts a part of a loan in an ailing company into stock, with the group owning at least 51 per cent stake. Lenders to Visa Steel and Electrosteel Steels had decided on SDR.

Debt restructuring plans were already being implemented. The meeting was to ensure these plans stayed on course.

An SBI executive said with a minimum import price (MIP) for products, steel firms, especially ones with integrated units, would benefit over time. The government had slapped MIP to discourage reported steel dumping by China.

Banks have been patient and flexible in rescheduling loans and are even giving additional facilities to stressed borrowers to help them. "The assessment is the margins of steel players would be better, giving them the ability to pay over," said an executive with a large public sector bank.

Outstanding bank credit to the iron and steel sector grew at 11.8 per cent to Rs 3,03,700 crore in the 12 months to January. Steel is one of the most stressed sectors, with 52 cases of exposure worth Rs 54,051 crore being handled by the corporate debt restructuring (CDR) cell.

The message from the government has been clear: Keep up pressure on defaulters for recovery.

The loan meeting comes after the central bank carried out a review of several banks and asked them to recognise certain assets as non-performing ones. The central bank later said it was working with the government and banks so that stressed assets could be recognised on an active basis.

This was to ensure a bank's balance sheet reflected a true and fair picture and was adequately provisioned.

On bad loans, rating agency CRISIL had last week said a sharp rise in amounts to be set aside for stressed loans could force nine or 10 of the 26 public sector banks (PSBs) to report losses in the next financial year. Besides the provisioning, factors such as a dent in interest income, the new regime to price loans and the scheme to revive power distribution companies (discoms) might shave off 10 basis points from their net interest margin. On Thursday, the rating agency effected a major rating action - downgrades and change in outlook - on bonds of PSBs. They will continue to have asset quality problems in 2016-17, it said.

RECOMMENDED FOR YOU

Banks crack whip on debt rejig

Govt asks lenders to focus on all defaulters not just high-profile ones

Govt asks lenders to focus on all defaulters not just high-profile ones Banks have given a stern message to companies under debt restructuring, especially steel firms: Shape up or ship out.

The government has asked the lenders to focus on recoveries from all defaulters, and not just high-profile ones.

An executive with a public sector bank said there were a few meetings, at State Bank of India (SBI) headquarters, where some accounts were reviewed as part of a two-day lenders' meeting that started on Monday.

Kingfisher Airlines' accounts were not discussed. The accounts discussed included those of Bhushan Steel, Visa Steel, and Electrosteel Steels. Bhushan Steel's lenders had not opted for strategic debt restructuring (SDR), where a group of lenders converts a part of a loan in an ailing company into stock, with the group owning at least 51 per cent stake. Lenders to Visa Steel and Electrosteel Steels had decided on SDR.

Debt restructuring plans were already being implemented. The meeting was to ensure these plans stayed on course.

An SBI executive said with a minimum import price (MIP) for products, steel firms, especially ones with integrated units, would benefit over time. The government had slapped MIP to discourage reported steel dumping by China.

Banks have been patient and flexible in rescheduling loans and are even giving additional facilities to stressed borrowers to help them. "The assessment is the margins of steel players would be better, giving them the ability to pay over," said an executive with a large public sector bank.

Outstanding bank credit to the iron and steel sector grew at 11.8 per cent to Rs 3,03,700 crore in the 12 months to January. Steel is one of the most stressed sectors, with 52 cases of exposure worth Rs 54,051 crore being handled by the corporate debt restructuring (CDR) cell.

The message from the government has been clear: Keep up pressure on defaulters for recovery.

The loan meeting comes after the central bank carried out a review of several banks and asked them to recognise certain assets as non-performing ones. The central bank later said it was working with the government and banks so that stressed assets could be recognised on an active basis.

This was to ensure a bank's balance sheet reflected a true and fair picture and was adequately provisioned.

On bad loans, rating agency CRISIL had last week said a sharp rise in amounts to be set aside for stressed loans could force nine or 10 of the 26 public sector banks (PSBs) to report losses in the next financial year. Besides the provisioning, factors such as a dent in interest income, the new regime to price loans and the scheme to revive power distribution companies (discoms) might shave off 10 basis points from their net interest margin. On Thursday, the rating agency effected a major rating action - downgrades and change in outlook - on bonds of PSBs. They will continue to have asset quality problems in 2016-17, it said.
image
Business Standard
177 22

More News

  • Power reforms may pressure states' budgets: RBI RBI may agree demand for a nodal agency for P2P lending
  • IDBI Bank opts for AT-1 bonds to raise Rs 1,500 cr IDBI Bank raises Rs 1,500 cr via tier I bonds
Widgets Magazine
Widgets Magazine
Advertisement

Upgrade To Premium Services

Welcome User

Business Standard is happy to inform you of the launch of "Business Standard Premium Services"

As a premium subscriber you get an across device unfettered access to a range of services which include:

  • Access Exclusive content - articles, features & opinion pieces
  • Weekly Industry/Genre specific newsletters - Choose multiple industries/genres
  • Access to 17 plus years of content archives
  • Set Stock price alerts for your portfolio and watch list and get them delivered to your e-mail box
  • End of day news alerts on 5 companies (via email)
  • NEW: Get seamless access to WSJ.com at a great price. No additional sign-up required.
 

Premium Services

In Partnership with

 

Dear Guest,

 

Welcome to the premium services of Business Standard brought to you courtesy FIS.
Kindly visit the Manage my subscription page to discover the benefits of this programme.

Enjoy Reading!
Team Business Standard