Money Management

loan restructuring: banks set to restructure loans up to Rs 8.4 lakh crore after RBI decision: report

Banks are likely to restructure loans up to Rs 8.4 lakh crore, or 7.7% of the system’s overall credit, as part of the newly announced overhaul, a national rating agency said on Wednesday. Over 60% of that Rs 8.4 lakh crore was likely to slip into the non-performing asset (NPA) category if it weren’t for the overhaul, and the restructuring will help banks’ bottom lines as the money to put in aside because provisions will be lower, according to India Ratings and Research.

Earlier this month, the RBI announced a redesign package that focused on a case-by-case approach to restructuring rather than a holistic or sectoral approach. The central bank had also authorized the overhaul of low-value non-commercial loans.

Unlike the previous experience after the global financial crisis, where almost 90% of restructurings were in business loans, the non-business segment, which includes small businesses, agricultural loans and personal loans, will this time represent a larger share, says the agency.

He estimated the total amount of non-commercial loans to be recast at Rs 2.1 lakh crore.

He further said the non-business segment was showing signs of stress even before the pandemic began, as things appeared to be normalizing in the corporate space.

In the business segment, Rs 4 lakh crore of loans were already stressed before COVID-19 hit and the same increased by over Rs 2.5 lakh crore. The jump into the non-business segment is more pronounced, as the stressed part was only Rs 70,000 crore, which is now expected to reach Rs 2.1 lakh crore, he said.

Within the corporate segment, restructuring can range from Rs 3.3 lakh crore to Rs 6.3 lakh crore, depending on the strategies adopted by banks, the agency said, adding that the range is so wide as it estimates. that 53% of the pool is at a high level. at risk, while 47 percent are at moderate risk.

A high proportion of debt in real estate, airlines, hotels and other consumer discretionary sectors is likely to be restructured, but the largest contribution by quantum will come from the infrastructure, energy sectors. and construction, he said.

In the non-business segment, micro, small and medium-sized enterprises will account for half of the loans that will be restructured, while the rest will be split equally between agricultural and retail advances, he said.

Banks will start work on restructuring as soon as the moratorium ends by the end of this month and provide money accordingly, the agency said, adding that the KV Kamath committee will review advances of more than 1,500. Rupee crores and even in the case of large loans, banks will do the preparatory work in advance.

The overall provisions will be 16 to 17% lower than 2.3% for the banking system, because the restructuring obliges the banks to set aside only 10% of the outstanding loan as provisions while only for the ANP, it is much higher, he added.