Bankers Guide Towards Lower-Than-Feared Post-Covid Restructuring
Employees work in the loan clearing department at a HDFC Bank branch in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

Bankers Guide Towards Lower-Than-Feared Post-Covid Restructuring

A one-time restructuring permitted by the Reserve Bank of India saw limited demand in the first month after the provision was announced, according to disclosures made by some banks as part of their quarterly earnings.

The RBI had permitted lenders to restructure accounts without downgrading them to non-performing starting September. The deadline for invoking such restructuring is end-December. The regulator has also mandated disclosure of restructured accounts, which kick-in starting the March 2021 quarter. Ahead of that, some banks have given information on the early pipeline of restructuring. Not all lenders have done so.

State Bank of India has received restructuring requests worth Rs 6,495 crore, it said. This includes Rs 4,000 crore in corporate loans, Rs 1,100 crore in small and medium enterprises loans and Rs 1,300 crore from retail loan borrowers.

Union Bank of India said it has initiated restructuring for corporate loans worth Rs 3,600 crore, MSME loans worth Rs 500 crore and about Rs 100 crore in retail loans, according to Rajkiran Rai, MD & CEO.

Another large state-owned lender Punjab National Bank reported Rs 2,064 crore worth of restructuring requests as on September 30, which included about Rs 2,021 crore in corporate loans and Rs 43 crore worth retail and SME accounts.

Addressing an analyst conference call, Rakesh Jha, chief financial officer at ICICI Bank disclosed that requests for restructuring corporate and small business loans stood at Rs 2,100 crore as on September 30.

Some banks, as part of commentary made during earnings calls, have also given an estimated amount of restructuring they foresee.

SBI disclosed that it expected another Rs 13,000 crore worth loans to seek restructuring before December 31. “Out of this Rs 13,000 crore expectation, we will have some pullback before the deadline ends. We will get a clearer picture when we are nearer to the (third) quarter-end,” Khara told BloombergQuint in an interview.

SBI’s outstanding loan book as on September 30 stood at Rs 23.83 lakh crore. Even if the entire expected Rs 13,000 crore comes up for restructuring, the share of restructured loans would be less than 1%.

“Originally in August when the circular came, we estimated around Rs 40,000 crore overall (restructuring) including the corporate book. but surprisingly we have not received much of a request as far as restructuring is concerned,” SS Mallikarjuna Rao, MD and CEO at Punjab National Bank, told analysts over a conference call after announcing the second-quarter results.

In case of Axis Bank too, the expected restructuring is low. “The estimated fund-based restructuring translates to approximately 1.6% of our loan book,” Puneet Sharma, CFO, Axis Bank told analysts during a conference call.

According to the Punjab National Bank chief, the total restructured pool may not exceed Rs 20,000 crore. Union Bank of India expects a total restructured pool of Rs 16,000 crore by the end of this financial year, Rai told analysts.

Lower Than Feared

Early indications suggest that the pool of restructured loans will be much lower than the Rs 8.4 lakh crore estimate India Ratings & Research had released in August.

But analysts remain cautious.

“The true asset quality picture of banks will only get clearer by December (when Q3 numbers are out) because of two major reasons. First, there will some amount of cash flow due to festive demand right now. Second, those restructuring requests are still flowing in,” said Jindal Haria of India Ratings & Research.

It is also possible that borrowers needed three to six months of support but are not looking for a longer-term deferment of payments, said Kajal Gandhi, VP research, ICICI Securities. But Gandhi remains watchful.

“The accounts which were under moratorium till August will come up for asset quality downgrade in December. Banks may choose to restructure some of them and let others slip. We would have to look at a cumulative number including the final restructured assets and those which slip in December to have a view on asset quality,” she said.

Amit Khurana, head of equities at Dolat Capital added that the delay in marking down loans into the non-performing category due to the Supreme Court’s interim stay may also have delayed requests.

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