Rating agency ICRA expects 70 large corporate accounts, with loans worth Rs 3.8 lakh crore, to come up for resolution by September 1, 2018, it said in a presentation today.
These are accounts which are rated ‘D’ by external rating agencies and have outstanding debt of over Rs 2,000 crore, ICRA explained. More than 90 percent of these accounts are already classified as non performing in bank books but are approaching the 180 day deadline set for resolution under the Reserve Bank of India’s new stressed asset resolution framework. If a resolution plan is not finalised within these 180 days, the accounts need to be referred for insolvency proceedings, the RBI’s framework says.
In its report the rating agency said that, of these accounts, 34 accounts with Rs 2 lakh crore in exposure belong to power sector alone. About 12 accounts with over Rs 70,000 crore worth of loans will come from the engineering segment.
So far, loans worth Rs 4 lakh crore are being resolved under the Insolvency and Bankruptcy Code under various benches of the National Company Law Tribunal. However, the expectation is that the recovery from most of these accounts won’t be as high as what has been seen in steel accounts which have been resolved so far, ICRA noted in its report.
Recently, Tata Steel Ltd offered to repay loans to Bhushan Steel Ltd’s lenders at a 37 percent haircut, under the insolvency framework. In the case of Electrosteel Steels, the haircut is close to 50 percent.
While discussing the stressed power sector accounts, ICRA noted that the gas-based power projects could result in the highest haircuts for the banking sector, followed by projects which are partially completed. The banking sector could see the least amount of haircuts in the case of power plants which are operational and have fuel linkages and power purchase agreements in place.
Of the 41,000 MW of power assets in the country, nearly 10,500 MW are yet to be fully completed.
Outlook For FY19
The rating agency said that the pace of addition of non-performing assets (NPAs) will be slower in FY19 than the years before. The rate of fresh NPA generation could slow down to 3 percent in the current financial year, as compared with 7.3 percent in 2017-18.
ICRA expects that in financial year 2018-19, gross NPA ratio for the banking system could rise to 12.2 percent, from 11.6 percent in the year before. Adjusting for accounts in the NCLT and expected write offs, the gross NPA ratio could stand at 10 percent by the end of the current financial year.
For public sector banks, the trend of reporting losses could continue in this financial year, led by treasury losses and higher provisioning against bad loans and write offs. The state-owned banks could report a net loss of between Rs 419-1,016 crore this year, as compared with Rs 1,304 crore worth of loss in FY18.
If the losses end up closer to the higher end of this estimate, then the government will have to increase its capital allocation for these banks, ICRA noted.
In 2017-18, eight out of 21 public sector banks reported Tier-1 capital below 7 percent. More public sector banks are likely to be added to this category this year, if the government does not front load its capital infusion plan, the rating agency said.