Lenders may recast Rs 1 lakh-cr more by March 2015

Lenders afflicted with bad loans are unlikely to see any improvement over the next five months, according to rating agency India Ratings, despite industries and trade looking up because of a new and stable government at the Centre.

Lenders might restructure assets worth Rs 60,000 crore to Rs 1,00,000 crore between now and March next year, as many companies have failed to generate adequate cash flows to service the debts, the rating agency said in a report.

Around one in four of the 500 largest corporate borrowers may formally be tagged as financially distressed — identified as bad loans or restructured asset — by end-March, adds the report.

The aggregate debt of these 500 corporates is Rs 28.76 lakh crore, which is 73 per cent of the total bank lending to industry, services and export sectors, India Ratings said.

While the corporate cash-generation ability has shown a minor uptick, it might not improve substantially in the next six to nine months, the report added. Thus, the weakest corporates with stretched credit metrics may remain so in the short to medium term.

Banks might have to take calls on corporate accounts, which are servicing debts with some delay, as the process of the Reserve Bank of India’s calibrated withdrawal of regulatory forbearance picks up speed from April next year.

Within the top 500 corporate borrowers, 83 companies, with outstanding domestic currency debt of Rs 2.43 lakh crore, have not been publicly tagged as financially distressed. This is despite the companies having severely stretched credit metrics and no strong parent.

If some of these units are unable to generate significant cash flow or infuse significant equity in the near term, they might be identified by their lenders for restructuring.

Within these 83 corporates, operating profitability barely covers the interest required to be serviced in most cases, and there is also the absence of any strong parent. These corporates have limited expectation of an immediate improvement in profitability.