Rollover headache ahead for banks

Loans worth Rs 1.9-2.1 trillion due for refinancing

Banks face substantial work ahead, with loans worth Rs 1.9-2.1 trillion belonging to the top 100 companies (non-financial and non-public sector) due for refinancing between now and March 2015, says an India Ratings analysis. It did not name the companies in its statement.

About half this amount might present a significant underwriting challenge, given the difficult macroeconomic situation. The agency said 24 per cent of the refinancing requirement is attributed to 20 companies already in distress. Another 26 per cent of the refinancing requirement belongs to a category termed Elevated Refinancing Risk (ERR).

Companies in ERR have weak credit metrics. Generally, their asset coverage ratios are low and financial flexibility of the promoter is limited, it said. Under normal market conditions, they should be able to refinance at a high cost or with stringent covenants.

However, this group could face significant challenges in debt refinancing during stressed market conditions, said India Ratings.

Banks have turned cautious in dealing with companies showing elevated refinancing risk and stressed entities.

The sector has limited incremental loans to companies in the ERR and stressed categories, as evident from the declining proportion of bank loans to total debt over FY12-13.

Given the low asset cover, the amount to be refinanced and the price might not be an easy decision. Limited non-banking funding options and the challenges of post-default recoveries could also have a role, it added.