Slowdown, delayed payments keep CDR references high in June quarter

Reflecting pain from economic slowdown, payment delays and policy logjam, the quantum of stressed credit sent for corporate debt restructuring (CDR) by banks in the first quarter remained elevated. Lenders referred loans worth of Rs 29,300 crore to CDR in April-June, up from Rs 19,200 crore in the first quarter of 2012-13.

The scale of CDR continued its record breaking streak for the second year in a row. The economy stuck in slow growth mode, problems in fuel linkages for power projects and delays in regulatory and environmental clearances and higher interest rates hit corporate balance sheets.

It worked to the benefit of lenders, too. Instead of taking a hit for bad loans, they had to provide less of restructured debt.

Industries with high share in the recast portfolio are iron and steel, infrastructure, textiles, construction and telecom.

The pace of taking debt laden and stressed companies for recast is expected to ease in 2013-14. The improvement in business climate and Reserve Bank of India’s (RBI’s) strict norms for recast, including higher contribution from promoters to ensure “their skin in the game” could deter liberal reference for CDR.

Although the worst might be behind us, companies from construction and power sector vendors and hospitality sector could continue line up for loan restructuring.

RBI had recently increased provisioning requirement for restructured assets. The central bank raised provisioning to five per cent from 2.75 per cent for new restructuring cases from June onwards.

Referred cases, if accepted for CDR cell, will attract five per cent provisioning.