Banks expect debt-rejig cases to increase
Banks and companies have welcomed easing of debt-restructuring schemes that now allow firms from sectors, apart from infrastructure, to be a part of some of them. Provisioning requirement and bad loans are expected to go down.
“We could see reduction in restructured loans or nonperforming loans by H2FY17. It would not be surprising if we see reduction in fresh slippages in FY18 as the 5:25 scheme grows. (The 5:25 scheme allows banks to extend loans for a longer period for infrastructure projects, typically 20-25 years. Loans can be refinanced every five or seven years.) One can see immediate upgrades or reduction of SMA-2 (special mention accounts) loans. Mergers and acquisitions could slow,” said Kotak Institutional Equities.
Change in S4A norms, bankers say, will lead to lower provisioning requirement. Scheme for sustainable structuring of stressed assets or S4A allows banks to take equity in debt-laden firms and permits them to split loans of struggling companies into sustainable and unsustainable parts. Also, the change in S4A norms that allows unsustainable part to be upgraded to sustainable (with riders) will also have a positive impact on the bank's balance sheet as bad loans will go down.
“It is not only S4A but all other changes in schemes such as 5:25 and strategic debt restructuring which will improve resolution and recovery,” said Arundhati Bhattacharya, chairman, State Bank of India.
Analysts believe public sector banks and private lenders like ICICI Bank and Axis Bank stand to benefit. "Apart from this, it will also help companies undergoing S4A, as once the unsustainable part is upgraded, they can attract capital from banks and other financial institutions, which can help in making the project viable in the long run,” said N S Venkatesh, executive director, Lakshmi Vilas Bank.
Apart from this, central bank has allowed lenders to extend 5:25 scheme even to new project loans. The scheme can also be extended to existing project loans worth ~250 crore as compared to the earlier ~500 crore. This means several mid-sized companies can be a part of the scheme. Also, the 5:25 scheme can be extended to construction companies. A partner with a global consultancy firm said this move will allow banks to go back to business as usual. “So banks may buy time but the problem will come back unless real changes in the business are made,” he said.