The fact that the corporate debt restructuring (CDR) forum has received only eight cases, worth Rs 15,000 crore, so far this year might give the impression that pressure from stressed assets is on the decline. However, dig deeper and one realises loan/debt recasts are alive and kicking, albeit under joint lenders’ forums (JLFs).
Between July 2014 and February this year, commercial banks formed 355 JLFs for troubled cases. In keeping with their share of overall loans, public sector banks accounted for 254 such cases. The country’s largest lender, State Bank of India, was handling 107 cases, as head of a consortium, according to finance ministry data.
CDR, which provided a fresh lease of life to companies till March 2014, began to draw fewer companies, as it involved time-consuming processes, reducing the chances of protecting the value of the assets being restructured. A total of 33 cases, involving Rs 44,100 crore, were referred to the CDR forum in 2014-15, public sector bank executives said.
The Reserve Bank of India (RBI) has framed new rules to enable commercial banks to form JLFs to detect stress early and provide support to troubled companies. Banks have to prepare corrective action plans in case payments are due for more than 60 days. And, the banking regulator has to be informed about such cases.
With slow economic growth, high leverage and interest payment burden, Indian companies continue to reel under pressure. As such, banks have taken up various cases of stressed assets, especially in the case of infrastructure and core sector projects. This is aimed at reviving stalled projects and improving asset quality.
Nirmal Gangwal, managing director of Brescon Capital Advisors, said though reference to the CDR forum had declined in FY15, that wasn’t an indication of the real level of activity in this segment. The combined cases at JLF and the CDR platforms would be similar to what the bank sector recorded in 2013-14.
RBI is yet to come out with data on the loans being treated under JLFs. Estimates by rating agency ICRA show the value of restructured loans at the end of March is Rs 4,00,000-4,20,000 crore, against Rs 3,30,000 crore a year earlier.
In a report on the banking sector, Emkay Global Financial Services said banks continued to face asset-quality issues, given the persistent weak macroeconomic environment. This, the report said, led to greater provisioning for restructured loans and fresh slippages.