Debt repayments get easier for more textiles, steel firms

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Loans worth Rs 1,07,400 crore restructured by 5 PSU banks

Banks have restructured a higher number of loans given to the textiles, iron and steel sectors in the July-September quarter, making it easier for companies in these sectors to meet their repayment obligations.

Of the total advances of Rs 16,52,300 crore by five leading state-owned banks, loans worth Rs 1,07,400 crore were restructured in Q2FY13, while total non-performing assets stood at Rs 78,300 crore. Nearly 30 per cent of exposure of the textiles sector and 17 per cent of the iron and steel sector have been either restructured or have slipped into non-performing loans, according to a Kotak Institutional Equities report.

Restructuring of advances is one of the important channels used by banks to contain the deterioration in asset quality caused by rising bad loans. Public sector banks have been actively resorting to restructuring their advances under the special dispensation sche­me of the Reserve Bank of India (RBI) announced during 2008. The scheme enables banks to retain the status of standard accounts even after restructuring.

R K Bansal, executive director of IDBI Bank told FC, “In our case the highest amount of restructuring has happened in the steel sector. Also, there were many mid-corporate accounts that were restructured in the second half of the financial year.”

K R Kamath, CMD, PNB said, “ The total restructured amount of Rs 1,424 crore in the textiles sector is around 20 per cent of the total textiles loans, but this is miniscule as our total advances stand at Rs 3,00,000 crore.”

Pratip Chaudhuri, chairman of State Bank of India (SBI), has said his bank had restructured Rs 4,694 crore loans in the July-September quarter. With this, the total outstanding restructured loan book of SBI stood at Rs 40,454 crore. He has also said that the bank expects to restructure Rs 3,000 crore to Rs 4,000 crore worth loans every quarter.

The Kotak report studied five leading public sector banks -- State Bank of India (SBI), Punjab National Bank (PNB), IDBI Bank, Indian Overseas Bank and Allahabad bank. While the total exposure to the textiles sector stood at Rs 61,300 crore, their total restructured assets were worth Rs 12,900 crore. Similarly, for the iron and steel sector, the total exposure of these banks was Rs 89,900 crore, while the total restructured assets stood at Rs 8,600 crore. The non-performing loans were Rs 5,900 crore for textiles and Rs 5,000 crore for iron and steel.

The steep rise in the gross non-performing assets (NPA) during the first half of the current financial year has been accompanied by considerable pickup in the growth of restructured advances, particularly by public sector banks. However, restructured loans saw the lowest increase of 30 basis points in recent quarters to six per cent of loans, as restructuring of large-ticket loans (state electricity boards and aviation companies) were completed in the April-June quarter. Outstanding portfolio of aviation companies and state electricity boards was around 30 per cent of restructured loans, said the Kotak report.

Mahesh MB, banking analyst at Kotak Equities said, “Textiles is an export sector and there has been a weakening in export demand. Also, last year the raw material prices went up, which too impacted the sector. The iron and steel sector has been impacted by last year’s Supreme Court ruling.”

In the second quarter review of the monetary policy in October, RBI raised the provisions for restructured standard accounts from two per cent to 2.75 per cent.

According to RBI data, cumulative standard restructured advances have almost doubled from Rs 60,379 crore in March 2009 to Rs 1,06,859 crore in March 2011.

According to the Kotak report, higher slippages were seen for Indian Overseas Bank (five per cent), Bank of India (four per cent), Punjab National Bank (3.8 per cent), State Bank of India (3.7 per cent) and Andhra Bank (3.6 per cent).

According to PTI, in the first two quarters of the current financial year, banks referred a record number of 74 CDR cases, involving a total debt amount of Rs 40,000 crore, for restructuring. At least 35 banks have already reported an increase in their gross NPAs from the levels recorded at the end of the last financial year, as per an analysis of the latest quarterly results announced by them. The increase in gross NPAs has been as high as 60 per cent for lenders like Punjab National Bank, Allahabad Bank and Lakshmi Vilas Bank. The surge has been even higher for South Indian Bank (86 per cent) in the first half of current financial year.

According to a recent release from Fitch Ratings, non-performing loans for Indian banks will rise over the next year as the economic downturn continues. “Recent asset quality trends at both large and mid-sized government banks confirm our forecast that the Indian banking system’s reported gross non-performing loans ratio will rise close to 4.2 per cent for FY13. The proportion of restructured assets (not included in the reported non-performing loans) has also increased sharply. The total non-performing loans and restructured assets ratio may well exceed 10 per cent in FY13”.

At the end of the first-half of FY13, gross non-performing loans in the 10 largest government banks rose by about 60 per cent from a year earlier and by 32 per cent from FY12-end. These banks also account for the bulk of the non-performing loan stock and restructured assets, and are likely to see further pressure from the impact of slowdown in the next few quarters. Government banks account for over 70 per cent of the Indian banking system assets and are key drivers in shaping system averages. Non-performing loans at the three largest privately owned banks in India stand at an average of just 1.9 per cent.

Chaudhuri of SBI, while announcing the Q2 results, had said that more than Rs 4,000 crore loans would be restructured during the third quarter of the financial year (October-December).

He had said that Bharti Shipyard (Rs 700 crore), Hindustan Construction (Rs 278 crore) and Leela Venture (Rs 475 crore) were some of the companies awaiting restructuring.

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