The 5/25 scheme set up by the Reserve Bank of India may see restructuring of stressed loans of about Rs 80,000 crore in this financial year, estimates a research report by Assocham-CRISIL.
The 5/25 scheme allows banks to extend the re-payment schedule of loans to 25 years, with an option to re-finance them at the end of five years. It had been set up mainly with an aim to provide relief to the power and infrastructure sectors, the ones with a long gestation period.
The rationale behind the scheme is that it will help companies re-pay their loans as the economy picks up and the projects start making money instead of slipping into the bad loans category in a shorter-term period.
Experts also believe that the 5/25 scheme will enable banks to mitigate ALM (asset liability management) risks in funding long gestation projects.
The report added that in the first half of the financial year, around Rs 50,000 crore of assets have been restructured via the scheme. However, CRISIL believes that going ahead, some of the assets restructured under this scheme may slip into the Non-Performing Assets (NPA) category.
“Both 5/25 and SDR (Strategic Debt Restructuring) schemes have the potential to mask the true picture of asset quality of stressed accounts in the banking system. CRISIL believes 15 per cent of assets structured via the 5/25 method are likely to slip into NPAs over the medium term,” added the report.
It also stated that with the pressure of mounting bad loans on Public Sector Banks (PSBs), private sector banks will continue to take the edge in terms of growth.
“Public sector banks will need to focus on re-orienting their business model at they are saddled with a large proportion of bad loans and have limited capital. CRISIL expects advances of private banks to grow at 24 per cent compounded annual growth rate between fiscals year 2016-2019, materially ahead of 12 per cent for PSBs over the same period,” said the report.
It also stated that private banks have grown at a CAGR of 20 per cent between fiscal year 2010-2015 as compared to 16 per cent CAGR clocked by PSBs. Within private banks, growth is driven by new private banks, whose advances grew by 21 per cent CAGR over fiscals 2010-2015 compared with 17 per cent by old private regional banks.