SBI seeks flexibility for debt recast in two sectors

Exposure to metal and power sectors on wish list

State Bank of India has sought more flexibility in restructuring exposures to metal and power companies hit by the Supreme Court verdict deallocating coal mines and curbs on operating iron mines.

In a communication to the Reserve Bank of India last week, the country's largest lender said the problem of raw material shortages will be resolved over medium to long-term.

However, the power and metal industry need short-term relief to tide over the problem of raw material shortage and weakening pricing outlook. Owing to these factors, the existing project may need flexible restructuring in line with the economic life of the underlying assets.

The 5/25 scheme may be allowed for existing projects to relieve the stress on companies, SBI said.

Under the 5/25 structure, the bank may fix longer amortisation period (about 25 years) for loans to projects in infrastructure and core industries sectors, with periodic refinancing, say every five years.

Such restructuring would enable loan repayment to be co-terminus with cash flows from the projects. It would also improve debt-servicing capacity and viability of the operational projects.

SBI said, further, in cases where operational coal blocks have been de-allocated or raw material linkages have been suspended, the profitability and debt servicing ability of these companies may be adversely affected. These projects should be allowed to be refinanced again by the existing lenders. The provisioning norms should be waived off for such restructuring so that repayment tenor for project loan is in line with the revised cash flows available for debt servicing, SBI said.

Last week, global rating agency Moody's retained its negative outlook on India's banking system. The high leverage in the corporate sector could prevent any meaningful recovery in asset quality over the next 12-18 months, Moody's said.

According to Moody's report, India's broad corporate sector is highly levered, with a debt-to-equity ratio of more than 3.0x.

In particular,corporates engaged in infrastructure projects face both structural and cyclical challenges, the rating agency said.

Without a stronger economic recovery, significant deleveraging will only occur beyond the horizon of this outlook, it added.