India’s largest lender isn’t expecting any of its large corporate borrowers to apply for a restructuring scheme owing to the Covid-19 crisis, at least for now.
That’s according to Arijit Basu, managing director of State Bank of India, who said that quality of SBI’s corporate loan book had significantly improved in March and the Covid-19 pandemic hasn’t affected it much.
“I can confirm to you that there are no large companies for SBI, which would be looking for restructuring at this point in time. The Covid-19 impact is still going on and we’ll need to see what happens in the future,” he told BloombergQuint in an interview. “But right now, there are not too many accounts and certainly no large accounts which would need this.”
The companies on SBI’s book, according to Basu, have shown resilience during the pandemic and subsequent national lockdown. Even though some companies had sought a moratorium, most didn’t take it up, he said. The bank isn’t expecting a repeat of a situation of the last few years where companies restructured their debt profile and were still unable to repay their debt, Basu said.
While announcing the lender’s earnings for the quarter ended June, Chairman Rajnish Kumar had noted that loans worth about Rs 13,000 crore were under stress but hadn’t become non-performing, since the RBI didn’t allow banks to downgrade borrowers. Kumar had said when the moratorium on repayments is lifted, potential stress could emanate from this pool of accounts.
According to Basu, the position has significantly improved since then as state electricity distribution companies have repaid dues in the last few months and a large consumer goods maker had resolved the stress on its balance sheet through a sale.
Billionaire Mukesh Ambani-led Reliance Industries Ltd. said on Aug. 29 it’s buying the retail and wholesale businesses of Future Group for nearly Rs 25,000 crore. SBI was one of the large lenders with exposure to the Kishore Biyani-owned Future Group.
“At this moment we’re looking at very few companies and none of them have come to us for resolution,” Basu said. “We know these companies will have to come to us for restructuring because we have a sense of their financial position. But these are small companies and are few in number.”
Speaking about SBI’s assessment of the KV Kamath Committee report on debt restructuring, Basu said the bank had been waiting for the financial benchmarks to be announced to finalise its restructuring plan.
Released on Monday, the Kamath committee report has mandated five financial parameters to be considered before an account is put up for restructuring. They include:
- Total outside liabilities /adjusted tangible net worth.
- Total debt/Ebitda.
- Current ratio.
- Debt service coverage ratio.
- Average debt service coverage ratio.
Even among these parameters, the committee has recommended sectoral thresholds that the company must meet to be eligible for restructuring.
“Even under normal circumstances, we would have looked at these parameters to get a sense of restructuring a company’s debt,” Basu said. “Additionally, we would also look at liquidity situation of the sector the companies belong to, the profitability of the borrowers and their interest coverage ratio to decide on a restructuring plan.”
As a Subscriber you get
Stories
RECOMMENDED FOR YOU
POPULAR