Banks may restructure Rs 8.4 tn loans as economy sputters: India Ratings

Indian banks may restructure loans worth Rs 8.4 trillion--about 7.7 per cent of total credit in March 2020--to manage financial stress caused by the coronavirus pandemic. The loans cover corporate and non-corporates accounts that banks may recast under the Reserve Bank of India’s recent norms, according to India Ratings.

Almost 60 per cent of Rs 8.4 trillion credit is already susceptible to slip into non-performing asset (NPA) category after lockdowns to contain the coronavirus devastated the economy, in absence of restructuring.

The total amount recast could be higher if restructuring in non-corporate segments exceeds 1.9 per cent of the total bank credit, it said.

The central bank's recast norms would provide banks with an opportunity to keep viable accounts as standard in their books. This is because a large proportion of assets that otherwise would have slipped to the gross non-performing assets (GNPA) pool will now be restructured by banks.

However, the successful resolution of these accounts will depend on the revival of the economy, the prudent filters used for identifying assets for restructuring, critical assessment and tight monitoring.

Referring to corporate loans, India Ratings said banks might carry out restructuring exercise for loans up to Rs 6.3 trillion. Nearly 53 per cent of this pool is at a high probability of restructuring/slippages. The balance 47 per cent is at moderate risk of restructuring, and the progress on these accounts will depend upon the progress of Covid-19 situation.

A high proportion of the debt from the real estate, airlines, hotels and other consumer discretionary sectors is likely to be restructured. The largest contribution would be from infrastructure, power and construction, it added.

The agency estimated that non-corporate loans about Rs 2.1 trillion may get restructured\slippages. The Covid-19 pandemic impacting all sections of the society, the regulator has also extended the restructuring to retail loans as well.

About half of slippages\restructuring in non-corporate category would be in MSME segment. Balance would be contributed by agriculture, where Covid19 impact is albeit a lower, and retail (like home loans).  

Even the provisioning required by banks under the restructuring framework is lower than what normal slippages into GNPA would have required, India Ratings added.