Banks Restructured Over Rs 1 Lakh Crore Loans Due To Covid-19

A large chunk of the restructured debt came from corporate loan books of banks.

Under the RBI's first Covid resolution framework, restructured corporate loan accounts at Rs 68,897 crore were twice in value compared to the Rs 28,027 crore in retail loans that got recast.

Overall, the debt recast by Indian banks stood at just about 1% of their gross advances, according to disclosures made alongside bank earnings.

The total restructured amount under the RBI's August 2020 framework is much lower than what was anticipated, said Anil Gupta, vice president and sector head - financial sector ratings at ICRA.

"Our initial estimate was much higher at 5-6% Covid restructuring under the first RBI scheme as loans under moratorium were much higher last year, ranging anywhere between 20-50% across lenders," he said.

A similar view was shared by Pritesh Bumb, senior research analyst at brokerage firm Prabhudas Lilladher.

"The overall restructuring under RBI's first Covid resolution framework is also lower than expected because other measures such as loan moratorium and Emergency Credit Line Guarantee Scheme would have helped borrowers regularise their loans, thus lowering the need for restructuring," he said.

In August 2020, the central bank had allowed banks to do a one-time restructuring of corporate, personal and small business loans amid concerns of a spike in bad loans due to the Covid-19 pandemic.

Public sector banks restructured more loans compared to private banks. The total debt recast by public sector banks stood at Rs 68,918 crore, while private banks restructured loans worth Rs 32,597 crore, as of June 30, shows data compiled by BloombergQuint.

Punjab & Sind Bank Ltd., Bank of India, Bank of Maharashtra, Union Bank of India, Bank of Baroda, Indian Overseas Bank and Central Bank of India reported the highest share of restructured loans among public sector banks.

Among private sector banks, small and medium sized banks reported higher restructuring.

IDBI Bank reported nearly 3% of its total loans under restructuring, while Yes Bank reported a restructured loan ratio of 2.83%, for DCB Bank it was at 1.8%, while IDFC First Bank and The Karnataka Bank were at nearly 1.7% each, and City Union Bank at 1.6%.

Overall, public sector banks seem to have been more accommodating towards borrowers in terms of restructuring loans and absorbing borrower stress, compared to private sector lenders, said Gupta. Total restructuring for public sector lenders, he said, was also higher given the extent of their exposure towards micro, small and medium enterprise borrowers.

"While most banks had closed restructuring for retail borrowers under the first resolution framework in December 2020, the restructuring for MSME and corporate borrowers was closed in the June quarter, resulting in higher restructuring for corporate loans," said Bumb.

As the second Covid wave hit the country, the RBI, on May 5, reopened the one-time restructuring scheme for retail and small business borrowers with aggregate outstanding dues of up to Rs 25 crore. Under the scheme, restructuring must be invoked by September 30 and implemented within 90 days of invocation.

Even as most banks are yet to implement Covid restructuring 2.0, some have recognised potential restructuring that could happen in the first phase. The amount expected to be restructured stood at over Rs 44,000 crore so far.

While Canara Bank reported Rs 13,234 crore under the second restructuring scheme, Punjab National Bank estimated loan exposures worth nearly Rs 6,603 crore getting restructured. State Bank of India expected Rs 5,246 crore in restructuring.

Among private banks, Bandhan Bank estimated restructuring of loans worth Rs 4,579 crore.

Axis Bank, ICICI Bank, RBL Bank, IDFC First Bank, reported no borrower accounts for restructuring under the extended framework. To be sure, these are only estimates as on June 30. Banks can add restructured loans to the list till Sep. 30.

Taken along with restructuring 2.0, the total loans restructured by Indian banks could touch over Rs 2 lakh crore by the end of this year, said Gupta.

The trends, however, would remain similar to the first round of restructuring, and public sector banks will undertake higher loan restructuring than private lenders, Gupta said. "But this time, one may see higher restructuring among retail loans as the second Covid resolution framework is only open to individual and small business borrowers."