CDR references drop sharply in December

Bankers, however, say it will be premature to celebrate

Did Santa Claus bring good news to bankers who have been burning mid-night oil to restructure debt of stressed companies?

The closing month of calendar year 2013 (December) saw dip activity at the Corporate Debt Restructuring (CDR) cell, with just four cases involving aggregate debt of about Rs 4,500 crore being referred for recast. In the month of November, the CDR forum received just three cases with aggregate debt of Rs 4,000 crore.

Top bankers including those at the CDR cell while showing “signs of relief” are prompt to caution that it is premature to open champagne bottles. There is enough stress in the system due to long-drawn slowdown and burden of interest costs on companies.

"Normally, there is a last minute rush to refer cases at the end of each quarter. But this time around there was no such pressure on us," said a relaxed IDBI Bank executive.

Banks and corporates sent loans of more than Rs 28,700 crore involving 14 cases to the forum in October-December 2013, according to provisional data from CDR.

The large cases like ABG Shipyards and Gujarat NRE Coke referred in October swelled the tally. The infrastructure, textiles and iron and steel sector still lead the pack of stressed companies that are under debt recast.

A senior public sector official said many large groups, especially those in roads, power and other infrastructure segments are trying to sell assets and restructure operations. Perhaps this would relieve them from the need to come to banks for recast.

Dun and Bradstreet in its outlook for 2014 said maximum distress in debt was witnessed in the iron & steel sector and infrastructure sector. They have high share in stressed asset book (NPAs plus restructured loans) of public sector banks.

With continued deceleration in the industrial growth, pick-up in activity in infrastructure and iron & steel sector is expected to be delayed. Since concentration of distressed assets is higher in these sectors asset quality deterioration in Indian banks is set to worsen, it said.

Rating agency Icra has painted a similar picture about the stress levels of banks. In light of large debt recast under CDR, standard restructured advances are slated to grow from 5.3 per cent at end of March 2013 to 6-6.2 per cent by March 2014, it said.

Abizer Diwanji, National Leader - financial services at Ernst & Young India said life will be tough in 2014. Loans given in boom time have showing stress now when the economy is growing at slow pace.  

The Reserve Bank of India has proposed more steps tighten rules for restructuring and non performing assets. They will have definite impact on the restructuring activity, he said.