Large corporate loan recast in deep waters

200 accounts set to become NPAs by March-end as bankers want immunity from prosecutions in future

Alarge number of corporate debt proposals would miss the Marchend deadline and fall into the non-performing assets (NPAs) category, with banks refusing to clear the files unless given immunity from prosecution, bankers and chief executive officers said.

Over 200 accounts are in different stages of getting approval for loan restructuring and the “go-slow” approach by banks would hit corporates hard in making investment decisions for the next financial year (FY18), beginning April.

“There are zero incentives to clear debt recast packages. On the contrary, since January 23, the mood among bankers has changed, as they want an additional layer of clearance, apart from the green signal given by the bank’s management and board. This has led to a complete standstill of debt recast packages and major slowdown in loan clearances,” said the finance head of a large group, which was expecting to close its loan recast by March this year.

On January 23, the Central Bureau of Investigation arrested former IDBI Bank chairman Yogesh Agarwal and three other bankers for approving a ~900-crore loan to the now-defunct Kingfisher Airlines in 2009. Public sector bankers are scared after this action to such an extent that they have stopped taking action on pending files — especially large corporate loan accounts.

Corporate finance heads say they will apply for loan recast packages in FY18 when the government is expected to set up more oversight committees (OCs) to monitor loan recast packages. Bankers expect such OCs to approve more recast packages. As of now, there is only one OC, set up after the Reserve Bank of India (RBI) came up with S4A (Scheme for Sustainable Structuring of Stressed Assets) last year. To date, the S4A scheme has been cleared only for Hindustan Construction Company, while GMR Infrastructure is in the queue. Most of the corporate debt restructuring packages are from the power, steel, mining, infrastructure and telecom sectors, which lost licences or spectrum following court rulings. Banks are also facing the RBI-set deadline of March-end to make provisions for bad loans, which have now ballooned to ~11.88 lakh crore. A Credit Suisse report has estimated banks will have to set aside another ~86,000 crore by March 2018 to meet the RBI requirements for bad loans. Besides, according to a Bloomberg report, 36 companies with loans worth ~1.5 lakh crore are awaiting conversion of the same into equity by banks.

Senior executive with a Mumbai-based public sector bank said banks had invoked provisions for strategic debt restructuring (SDR) in some stressed cases especially in the steel and power sector in 201516. This gave lenders the right to take control and bring other investors on board. But there have been not many takers. The SDR process gave lenders an 18month window to find new buyers and treat the loan as standard during that period. Many such cases would move into the NPA category now.

Without amendment to rules for restructuring, many accounts will have to be treated as bad loans. This is expected to increase the provisioning bill beginning from the current quarter (Q4 2016-17). This comes at a time when interest income is subdued and income from treasury operations would be tepid due to rise in bond yields, the banker said.

In order to break the impasse, banks have written to the central bank seeking relaxation of debt recast norms, including spreading provisioning of large accounts over eight quarters and not seeking personal guarantees from existing promoters. But the RBI has not given any indications as yet to relax norms. It is, however, expected that by April, the RBI will come up with new norms that would help corporates to restructure their debt.

In a recent meeting with the RBI, Finance Minister Arun Jaitley deliberated on steps taken to reduce the stressed assets problems of the banking sector. Banks Board Bureau Chairman Vinod Rai has also expressed concern over the tardy progress of the NPA problem in the banking sector that has almost brought fresh investments by private sector to a standstill.