he slowing credit growth can primarily be contributed to weak economic growth, activity, risk-aversion trend of banks on stressed mid/large corporate and uncertain political milieu with respect to land acquisition and environmental clearances reforms.
CARE Research expects restructured advances to be in range of Rs 3.8 trillion to 4 trillion in FY13e v/s Rs 2.3 trillion in FY12.
Restructuring is expected to remain elevated up to 1HCY13 on account of deteriorating interest servicing capability of large, medium and SME industries, delayed project, and policy paralysis with respect to reforms and investments climate, it said.
Restructured assets (as % of advances) grew sharply by 40 bps sequentially to 5.9% in Q2FY13 (5.4% QoQ) led by mounting stress in large/ mid corporate advances, and continued challenging business environment in SME sector.
CARE Research expects the current stress in the industry to persist up to 1HCY13 due to higher input costs, sluggish global/local demand, and uncertain local political scenario.
It believes that the economic revival will be U-shaped (prolonged as against the V-shaped revival seen in FY09-10) due to this economic structure.
CARE Research believes that the NPA levels are expected to be as high as 4.5% in FY13e on the assumption of 18% restructured advances turning NPA and low credit off take (base effect). However, expectation of higher pace of recovery in NPAs may help constrain the NPA levels in FY13e.
ue, Feb 05, 2013 at 19:50
Restructuring of loans on rise: CARE Research
CARE Research has come out with its report on "Slow economy/Weak investment /Intermittent reforms; Restructuring on rise". The research firm believes that the current stress in the Iron and steel industry to persist over FY14 due to margins pressure led by higher input costs, deteriorating debt payback capability.
CARE Research has come out with its report on "Slow economy/Weak investment /Intermittent reforms; Restructuring on rise". The research firm believes that the current stress in the Iron and steel industry to persist over FY14 due to margins pressure led by higher input costs, deteriorating debt payback capability, and structural issues such as less conducive economic, & political surroundings.
The slowing credit growth can primarily be contributed to 1) weak economic growth/activity, 2) risk-aversion trend of banks on stressed mid/large corporate (deteriorating asset quality rising NPA/restructuring), and 3) uncertain political milieu with respect to land acquisition/environmental clearances reforms (leading to cancellations/delay in project loans). CARE Research expects restructured advances to be in range of ~Rs. 3.8trillion - 4.0 trillion in FY13e v/s Rs. 2.3trillion in FY12 on the assumption of 1) CDR representing 50% of total restructured and 2) the balance being, restructured through bilateral mechanism. Restructuring is expected to remain elevated up to 1HCY13 on account of 1) deteriorating interest servicing capability of large/medium/SME industries, 2) delayed project approvals/clearances resulting into cost escalation, and 3) policy paralysis with respect to reforms/investments climate. However, some key policies approval/reforms, aggressive rate cut by RBI (though lower prospect), and considerable recovery (lower probability) are downside risk to our assumption above.Restructured assets (as % of advances) grew sharply by 40bps sequentially to 5.9% in Q2FY13 (5.4% QoQ) led by 1) mounting stress in large/mid corporate advances, and 2) continued challenging business environment in SME sector.
CARE Research expects the current stress in the industry to persist up to 1HCY13 due to 1) higher input costs (suppressed margins), 2) Sluggish global/local demand, and 3) uncertain local political scenario. We believe that the economic revival will be U-shaped (prolonged as against the V-shaped revival seen in FY09-10) due to this economic structure (i.e. low growth/high inflation/low IIPs/high twin deficits).
Restructuring on Rise: the trend so far…Restructuring to gross advances ratio of Indian banking system reached a record high of 4.7% in FY12 as against 2.73% in FY09 driven by spurt in bilateral and CDR cases due to 1) companies’ inability to meet their debt obligations due to high interest cost regime and 2) sluggish domestic and global economies. Metals (Iron & steel), infrastructure, textile, construction and aviation have been the major contributor for increased restructured advances.
CARE Research believes that the current stress in the Iron and steel industry to persist over FY14 due to 1) margins pressure led by higher input costs, 2) deteriorating debt payback capability, and 3) structural issues such as less conducive economic (global/local slowdown), & political surroundings (i.e. snail-paced policy reforms attempts). Our steel sector analyst believes that only a few/large integrated steel producers with adequate RM availability (own captive mines) are likely to survive from this turbulence phase, forcing secondary/non-integrated capacities to wind-up/significantly lower the operating capacities.
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