Past instances of bank loan restructuring do not inspire confidence: Ind-Ra

Mumbai (Maharashtra) [India], Aug 19 (ANI): The recently announced loan restructuring guidelines for COVID-19 related stress will provide banks with an opportunity to keep viable accounts as standard in their books, India Ratings and Research (Ind-Ra) said on Wednesday.
This is because a large proportion of assets that otherwise would have slipped to the gross non-performing assets (GNPA) pool will now be restructured by banks.
However, successful resolution of these accounts will depend as much on the revival of the economy as on prudent filters used for identifying assets for restructuring, critical assessment and tight monitoring.
Even the provisioning required by banks under the restructuring framework is lower than what normal slippages into GNPA would have required.
As per Ind-Ra estimates, around 7.7 per cent (Rs 8.4 lakh crore) of total bank credit at March-end from corporate and non-corporate (retail, agri, micro, small and medium enterprises) segments could get restructured under the current framework.
It could be higher if restructuring in non-corporate segments exceeds 1.9 per cent of the total bank credit. Ind-Ra estimates that almost 60 per cent of Rs 8.4 lakh crore was already susceptible to slip into the NPA category post lockdown in absence of restructuring.
However, the restructuring announcements in the past (FY08 to FY11 and FY13 to FY19) had raised concerns about the efficacy of the restructuring mechanism as most of the restructured assets had eventually slipped into NPAs.
While Reserve Bank of India has put in place several guardrails this time around in the form of defined timelines and external vetting, the success of the dispensation will still largely depend upon a significant revival in the economy, said Ind-Ra.
The agency further estimates based on an account level analysis that nearly 53 per cent of this pool is at a high probability of restructuring and slippages. The balance 47 per cent is at moderate risk of restructuring and the progress on these accounts will depend upon the progress of COVID-19 situation.
While a high proportion of the debt from the real estate, airlines, hotels and other consumer discretionary sectors is likely to be restructured, the largest contribution will be from infrastructure, power and construction.
With the COVID-19 pandemic impacting all sections of the society, albeit a lower impact on agriculture, the regulator has also extended the restructuring to retail loans as well.
Ind-Ra used the average of net slippage in these segments for public sector banks and private banks as the starting point and applied multipliers to arrive at expected net slippages for FY21 which can now be restructured.
The agency expects at least Rs 2.1 lakh crore (1.9 per cent of banking credit) of the non-corporate loans to undergo restructuring which would have otherwise slipped into NPA. (ANI)