Stable asset quality to keep debt recast cases low in Q4

Number of cases referred in April-December 2014 declined sharply to 22 from 84 cases in April-December 2013

The number of corporate debt restructuring (CDR) cases is unlikely to go up in the fourth quarter (Q4) ending March 2015, indicating a semblance of stability in asset quality. It is contrary to the expectation that lenders might send many cases for recast before the window for forbearance (benefit in provisioning) closes in March.

R K Bansal, head of the CDR forum and executive director of IDBI Bank, said the feedback indicated that there might not be a spurt in references in Q4. Activity (reference to CDR) in the third quarter was low-key.

According to CDR data, the number of cases referred in April-December 2014 declined sharply to 22 (for debt involving Rs 22,900 crore) from 84 cases (for debt involving Rs 1,09,600 crore) in April-December 2013.

Most of the restructuring work for corporate loans across sectors has happened in the past two years. However, risk of slippage remains high in the infrastructure sector, another public sector bank executive said.

Not many cases are left to be dealt under CDR. The process is stringent and consumes more time compared to corrective action plan under the Reserve Bank of India (RBI)'s new rules for early detection and resolution of distressed cases.

RBI has made it mandatory for banks to firm up corrective action plan (CAP) for loans, where payments remain due for over 60 days. Banks prefer to tackle corporate stress under a CAP regime, bankers said.

Banks' ratio of restructured assets to gross advances stood at 5.9 per cent in March 2014, compared with 5.8 per cent a year ago. In absolute terms, the restructured assets amounted to Rs 3,57,900 crore at the end of March 2014, RBI data showed.

The large amount of stressed assets (gross non-performing loans plus restructured loans) on balance sheet has worked a drag on profitability of banks.

They have had to make provision for stressed loans and also reverse interest income booked for NPAs.

The total stressed assets amounted to Rs 6,09,000 crore at the end of March 2014, according to RBI data.

The infrastructure, iron and steel, textiles, mining and aviation sectors had significantly higher levels of stressed assets. These five areas had 52 per cent of total stressed advances of all scheduled commercial banks.