As Deadline Ends, Few Takers For RBI’s One-Time Restructuring Scheme: BQ Exclusive

With the deadline for invoking the one-time restructuring announced by the Reserve Bank of India ending on Dec. 31, the banking system is estimating Covid-led restructuring requests to amount to less than Rs 2 lakh crore. According to five people in the know, the overall restructuring requests have been considerably fewer versus early estimates of at least 4-5 times that amount.

The banking system has received requests from about 65,000 borrowers with loans worth Rs 1.5-2 lakh crore under the one-time restructuring scheme, the people quoted above said. While most of the requests came from micro, small and medium enterprises, about 20 large corporate accounts have also sought to restructure their loans. Banks now have 180 days before they finalise a restructuring plan and implement it.

The Covid-19 one-time restructuring scheme, announced on Aug. 6 to offer relief to borrowers suffering economic effects of the pandemic, allows banks to restructure corporate and retail term loans without the account attracting the non-performing asset tag.

The Indian Banks’ Association, a bankers’ lobby, had approached the RBI to extend the deadline for invocation of the one-time restructuring scheme till March 31, 2021, four out of five people quoted above confirmed. The regulator, however, is yet to respond to the request.

So far, large accounts such as Future Group and Shapoorji Pallonji have sought one-time restructuring of their dues. A handful of mid-sized corporate accounts with outstanding debt below Rs 5,000 crore have also approached lenders to restructure their outstanding dues under the scheme, the people quoted above said.

The banking system had originally expected a large quantum of restructured assets this year. As the RBI’s six-month interest and loan repayment moratorium came to a close on Aug. 31, lenders expected that borrowers will seek restructuring to further defer their repayments. The one-time restructuring scheme allows borrowers to extend their repayment period by up to two years subject to several conditions.

Large private lenders like ICICI Bank Ltd. and Axis Bank Ltd. raised equity capital worth Rs 15,000 crore and Rs 10,000 crore, respectively, in August to adequately provide against bad loans which may hit balance sheets. Smaller private lenders like Yes Bank Ltd., too, raised capital this year to make provisions and manage stress. Even state-run banks started making higher provisions anticipating a rise in stress.

Analysts at India Ratings & Research Pvt. had estimated in August that loans worth Rs 8.4 lakh crore could seek restructuring. Similarly, ICRA Ltd. had estimated that 5-8% of overall bank loans, worth up to Rs 10 lakh crore, could seek restructuring. CARE Ratings Ltd., too, had estimated about 5% of bank credit to be restructured owing to the Covid-19 pandemic.

However, as July-September quarter financial results started coming in, it was evident that restructuring requests were likely to remain low.

India’s largest lender, State Bank of India, reported Rs 6,495 crore worth loans under restructuring as on Sept. 30. Further, SBI Chairman Dinesh Khara said the bank’s total restructuring requests would not exceed Rs 13,000 crore by December.

ICICI Bank reported restructuring requests worth Rs 2,100 crore in the second quarter, coming from corporate and small business borrowers. Union Bank of India reported restructuring requests worth Rs 3,600 crore, while for Punjab National Bank the figure stood at a little over Rs 2,000 crore.

To be sure, the RBI in its latest report on Trend and Progress of Banking in India said asset quality conditions are likely to worsen, owing to Covid-19.

Also Read: Bankers Guide Towards Lower-Than-Feared Post-Covid Restructuring

Covid Scheme Vs June 2019 Circular

Experts warn fewer restructuring requests may not necessarily indicate low stress across borrowers, corporate and retail.

According to the managing director and chief executive of a large public sector bank, the first of the five people cited earlier, the banking system has seen fewer restructuring requests under the Covid-19 scheme due to three major reasons:

The scheme has a high eligibility threshold for accounts that can avail of restructuring.
Corporate borrowers who have faced short-term liquidity mismatches have opted to avail working capital funding, including government-led assistance, to meet their requirements, rather than restructure term loans.
Loans availed by non-bank lenders such as NBFCs are not covered under the scheme.

To be eligible for the one-time restructuring scheme, a borrower should not have been in default for more than 30 days with any lending institution as on March 1, 2020. Further, the account should not have crossed 90 days of default on the day of invocation of the one-time restructuring scheme. A committee headed by veteran banker KV Kamath also suggested specific financial benchmarks corporate borrowers must meet to be eligible. The committee has also been asked to vet restructuring plans for accounts with dues worth Rs 1,500 crore or more.

The second banker cited earlier, an executive director at a large lender, said the impact of Covid-19 on borrowers is undeniable. While many may have not opted for this one-time restructuring scheme, borrowers will seek other ways to manage their finances. Those that have seen major disruptions in their finances could seek restructuring under RBI’s June 2019 scheme, this banker said.

Also Read: Nearly All Large Firms Unlikely To Opt For RBI’s One-Time Debt Recast: Crisil