Debt rejig references swell to Rs 47,300 cr in Q1 on revision

Shiv Vani Oil; Educomp Solutions are new meaty cases

With the ever-growing tally of vulnerable corporate accounts, the corporate debt restructuring (CDR) cell has revised upwards both the number of cases and the amount of loans referred to it for recast in the first quarter ended June. The cell received 27 cases involving credit exposure of Rs 47, 360 crore for the quarter, up from the initial estimate of 20 cases and Rs 29, 300 crore.

Most of the cases being referred are from infrastructure companies and firms which service infrastructure. Lenders filed references for new cases till June 30.

The new large cases are Shiv Vani Oil (Rs 2,500 crore) and Educomp Solutions and its subsidiary (about Rs 2,175 crore).

Continuing economic slowdown, delay in payments and policy logjam are the reasons cited for the increase in the quantum of stressed credit sent for debt restructuring. The problems in fuel linkages for power projects and delays in regulatory and environmental clearances and higher interest rates have also hit corporate balance sheets. Educomp Solutions said it had approached lenders to restructure its rupee debt to correct asset liability mismatch on its balance sheet.

It expects to fund a sustainable capital structure to finance business over medium- and long-term. Its key lenders include the State Bank of India and Axis Bank.

Revati Kasture, head of Industry research at CARE Ratings, said the recovery is just not in sight. There is strain on corporate accounts. The working capital cycles are stretched and small and medium size units are facing problems in recovering dues. The sharp slide in the rupee has complicated situation, which is already bad. The pressure are likely to be stay elevated.

The Reserve Bank of India (RBI) in its Financial Stability Report (June 2013) said there has been unhealthy trend in restructuring of advances by banks in India. The tendency is prominently seen especially amongst the public sector banks.

It (taking loans for recast) worked to the benefit of lenders also. Instead of taking a big hit for bad loans, they had to provide less amounts of restructured debt.

RBI has tightened norms for debt recast to curb tendency for liberal references. The present asset classification benefits available on restructuring will be withdrawn from April 2015. Loans would either be standard assets or treated as non-performing loans. Non-performing assets need higher provisioning compared to what banks set aside for recast debt.

The restructured standard loans of scheduled commercial banks as a proportion of their total loans have registered a marginal decline from 5.9 per cent as at end-September 2012 to 5.7 per cent at end-March 2013. Industry and services sector account for a major proportion of restructured loans of the banking sector. Within the industrial sector, a few sub-sectors such as iron and steel, textile, infrastructure, power generation and telecommunications have become a cause of concern in recent times, said RBI.