The Reserve Bank of India (RBI) has asked several lenders to make a provisioning of 25% of their outstanding loan for their exposure in JP Associate for the January-March quarter of 2016-17, which could impact the profitability of the lenders adversely.
Total bank loan to the group, which decided to sell its cement business to Aditya Birla group last year, is a whopping ₹58,000 crore. State Bank of India and ICICI Bank have an exposure of ₹7,000 crore and ₹6,000 crore. The deal the yet to be concluded. However, the central bank said the provision could be reversed once the deal is completed.
On Wednesday, two private sector lenders, IndusInd Bank and YES Bank announced that they had to set aside 25% of their exposure as provisioning. IndusInd Bank, which had an exposure of about ₹500 crore, has made a provision of ₹122 crore while YES Bank has set aside ₹228 crore for its ₹911.5 crore exposure. IndusInd Bank decided to keep the loan as a standard asset and YES Bank classified it as non-performing.
“Provisions were elevated at ₹430 core as they (IndusInd) included one-off amount of ₹122 crore on a bridge loan for a cement M&A transaction (account remains standard), where the receivable is in June (likely to get reversed in 1QFY18),” Motilal Oswal Securities said in a note on IndusInd Bank earnings.
Stressed loans were flagged by the banking regulator in its asset quality review of December 2015 and banks were asked to make provisions. While some smaller banks started making provisions, most lenders avoided it.
“The account was mentioned in the third list of asset quality review (AQR), so banks were asked to provide 2.5% in each quarter of 2016-17. However, since the group sold two of its hydro power plants to JSW Energy, some bankers argued this amounts to strategic debt restructuring (SDR) as ownership changed, hence avoided provisioning. However, now it seems the regulator has tightened the screws,” said a chief executive of a public sector bank.
Both IndusInd Bank and YES Bank expected that the provision will be reversed in the current quarter as the deal was about to be concluded.
In July 2016, UltraTech Cement, the flagship cement company of Aditya Birla Group, struck a deal to buy the cement plants for a total capacity of 21.2 MTPA of Jaypee Group for ₹16,189 crore.
