Banks turn the heat on top 50 defaulters

Top borrowers of India Inc who have defaulted in paying their dues have been summoned by lenders led by the State Bank of India (SBI) to take stock of the company’s financial position to make an assessment if they are in a position to service loans ahead of the Jan-March quarter closing.

According to the bankers, banks are discussing the issues with the top 50 defaulters, who contribute to 80 per cent of the bad loans out of a list of 150 defaulters that was handed out by the Reserve Bank of India (RBI), following a special inspection of bank books.

“We have called the borrowers facing difficulty in repaying for a discussion. We have told them to explore ways on how they can make a payment, including sale of assets. We will take stock of the situation if the borrower is in a position to pay. We have the option to take over the management control and sell it to other investors,” said a chief executive of a mid-sized public sector bank.

A Credit Suisse report on high debt levels of Indian companies had pointed out that debt servicing ratios have deteriorated for most business houses in the last three years and that debt-to- market cap ratio has increased for several companies like Adani Power, GMR Infra, Videocon, JP Power, Lanco Infra, among others. “Even as some groups cut back on capex and looked to sell assets, their debt/EBITDA have deteriorated further as the relatively better assets (contributing to as much as 70 per cent of EBITDA) were sold,” the report had said.

RBI had conducted an asset quality review of Indian banks and found many accounts that were showing stress were required to be classified as non-performing. But since banks were not classifying those accounts as NPA, the banking regulator directed lenders to classify them as sub-standard and provide accordingly. Sub-standard assets attract 15-20 per cent provisioning as compared to five per cent provisioning requirement in standard assets.

RBI had asked the banks to complete the exercise of classifying assets as NPA in the third and fourth quarter.

As a result, many banks including the likes of Bank of Baroda, IDBI Bank, Bank of India suffered record losses in the Oct-Dec quarter. Since the remaining accounts (those which were not classified as NPA in Q3), need to be classified as NPA in Q4, losses could her mount. Bankers said this has prompted the banks to call the management of the defaulting companies and ask them to make payments, which will help the lenders avoid further losses.

However, bankers involved in discussion with the corporate houses said some of the borrowers — badly hit by the economic downturn — are not in a position to service the loans.

“Take the steel sector for example, which has the maximum chunk of the NPA. The sector is going through a rough patch and all the companies are having cash flow problems,” said a senior banker from a public sector bank. The iron and steel sector is among the top five stressed sectors identified by RBI. The other sectors are infrastructure, textiles, mining (including coal) and aviation.

The RBI has allowed banks to take over management control of chronic default firms, that is, borrowers who failed to repay even after the loan was restructured. The move was aimed at speedy recovery, as banks, after taking control of the company, would proceed to sell the company to another buyer. This has also not helped as banks are not finding any buyer for the defaulting firms. Stressed assets, that is, gross non-performing assets plus restructured advances, in the country’s banking system were at 11.3 per cent of gross advances, as on end September with state-owned banks recording the highest level of stressed assets stood at 14.1 per cent.

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Printable version | Sep 18, 2020 8:35:10 PM |

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