Worst IS NOT Over For Banks

Worst probably not over for banks

Asset quality pressure likely to persist, with a rise in requests for a second debt recast bankers expect some improvement in FY14

Manojit Saha / Mumbai Dec 26, 2012, 00:29 IST Banks, facing increasing asset quality pressure for the past two years, might see some respite only by the end of 2013, if the recent pipeline of loan recast proposals is an indication. According to bankers, proposals for loan recast are still coming in, as supply-side issues like raw material linkages for projects are yet to be resolved. “Considering the portfolios coming up for corporate debt recast, we see this to continue for another six-nine months. Because, as far as issues regarding coal and iron ore linkages are concerned, these are yet to be addressed. In addition, we see an increase in the proposals for second-time debt restructuring, which are fairly large loans,” said Shubhalakshmi Panse, chairperson and managing director of government-owned Allahabad Bank. She said asset quality pressure might ease a bit from October 2013. State-run banks saw their ratio of restructured assets to standard gross advances going up to 5.73 per cent as on end-March 2012 from 4.2 per cent a year before. For private banks, the increase in the ratio is by 45 basis points, to 1.61 per cent during the same period. “I would not say the worst is over. We need to see how the companies, whose debt is restructured, perform. For example, we had restructured the debt of state electricity boards and tariffs (rates) were hiked. Now, we need to see when the income generation stabilises, for which we have to wait for six to nine months,” said D Sarkar, chairman and managing director, Union Bank of India. He said there were companies coming a second time for a debt recast. Around 17-20 per cent of restructured standard advances have become non-performing assets (NPAs). The Reserve Bank expects the ratio to increase to 30 per cent in a worst case scenario. Banks enjoy regulatory forbearance in the first debt; that is, the loan can remain a standard asset on the balance sheet even after the recast if certain conditions are met. However, if a loan is restructured for a second time, the asset has to be classified as non-performing, for which provisioning has to be made. State Bank of India, the country’s largest lender, believes the worst is over for itself on NPAs. Though the lender reported a higher gross NPA ratio at 5.15 per cent in end-September compared to 4.99 per cent in June-end, it was able to contain slippages. Net slippages came down substantially from Rs 7,000 crore (April-June) to Rs 2,000 crore (July-September) on the back of healthy upgradation of loans to the standard category. SBI Chairman Pratip Chaudhuri said a bank can only do as well as its customers. “The banking outlook reflects the collective outlook of our clients. Banks can do only as well as the clients do,” he said. http://www.thehindubusinessline.com/industry-and-economy/banking/