Loans Worth Rs 8.4 Lakh Crore Could Get Restructured: India Ratings

Indian banks could end up restructuring 7.7% of outstanding loan exposures, or nearly Rs 8.4 lakh crore, via the Reserve Bank of India’s restructuring window, according to rating agency India Ratings & Research. The restructuring window has been provided to corporate, SME and retail borrowers impacted by the Covid crisis.

According to the ratings agency, Rs 6.3 lakh crore worth of corporate loans could potentially be restructured. Out of this pool, Rs 3.3 lakh crore are seen at high risk of defaulting on their dues since they were stressed even before the Covid-19 pandemic. The remaining loans, worth nearly Rs 3 lakh crore, have seen aggravated risk of default owing to the pandemic and restructuring would depend on how banks view these accounts.

Across non-corporate loans, India Ratings expects at least Rs 2.1 lakh crore in loans to come up for restructuring. Nearly half of these loans will be from the micro, small and medium enterprises, while the remaining will be split between the agriculture and retail loan segments. Among retail loans, unsecured loans continue to be at a higher risk of default than secured.

Jindal Haria, director at India Ratings, said the ratings agency had noted a gradual rise in the default rate for retail accounts since 2015, which is likely to get worse under the pandemic.

The estimates for loans which may undergo restructuring have worsened since March, analysts at India Ratings said in a conference call on Wednesday. Before the Covid-19 pandemic hit India, the ratings agency estimated that corporate loans worth nearly Rs 4 lakh crore and non-corporate loans worth Rs 60,000-70,000 crore could face restructuring, Haria said.

However, under normal circumstances, these loans would have been marked as non-performing assets. The RBI’s restructuring scheme permits these loans remain standard in the books of banks, even though lenders have asked to disclose the amount of loans restructured.

The RBI has sought a 10% provisioning against restructured loans, lower than the amount that banks need to set aside for loans marked down as NPAs.

Also Read: RBI’s Restructuring Scheme: Tighter Rules Will Prevent A Return To The Past

Also Read: RBI Allows Restructuring Of Personal Loans. Here’s What You Should Keep In Mind

Before the restructuring scheme was announced on Aug. 6, India Ratings had estimated a credit cost of 2.8% for accounts affected by the pandemic. Owing to the lenient provisioning norms under new restructuring scheme, the credit costs could range between 2.3% and 2.6% for the entire banking sector, India Ratings said.