Loan recast hinges on coal supply to steel, power sectors

The government's decision to revive the process of allocation of coal blocks notwithstanding, banks might still have to recast their loans if users of coal are unable to start production and repayment of dues by March next year.

This is because, from April 1, banks have to treat all restructured loans as non-performing assets (NPAs) in terms of provisioning, according to Reserve Bank of India (RBI) norms.

According to industry estimates, about Rs 3 lakh-crore bank funding is stuck in several companies, which are into infrastructure development, due to deallocation of the coal blocks by the apex court.

"This is a welcome decision, as it removes uncertainty. However, it remains to be seen how soon can steel and power producers could get the input and start production. If the process takes time, we have to recast the debt by the end of the financial year," said a senior banker.

Restructuring of standard assets requires provisioning of five per cent. From April 1 next year, banks have to provide at least 15 per cent for debt recast, in line with provision required for sub-standard assets.

Banks have requested RBI for regulatory leeway for recasting such loans, in terms of lower provisioning. They have also sought to extend the higher provisioning norms by at least one year. RBI is still examining both the requests but yet to take a call.

While aggregate bank exposure to the power and steel sectors, the largest consumers of coal, is 13-14 per cent of total loans in FY14, the risk exposure, according to Citi Research analysts Aditya Narain and Abhishek Sahoo, is less than one per cent.

State Bank of India (SBI), Punjab National Bank and Canara Bank have the highest exposures to the two sectors, ranging from 14 to 16 per cent. SBI has the highest exposure to the two sectors at Rs 1.93 lakh crore. While reports had indicated a much higher number, the SBI management has said it has about Rs 4,100-crore exposure to the cancelled blocks, about 0.3 per cent of loans.

Apart from public sector banks, some of the private lenders to be impacted are ICICI , Axis and IDFC. ICICI Bank and Axis Bank have an exposure of 9-13 per cent to the two sectors. Consumer and smaller banks HDFC Bank, Kotak Mahindra, IndusInd, and YES Bank are largely unscathed.