Banks are likely to declare stressed accounts as non-performing assets (NPAs) in the second half of the current financial year rather than provide relief to borrowers under debt restructuring scheme, sources in the know of the matter told FE.


Many lenders including State Bank of India (SBI) have guided for a lower restructuring estimate till December, 2020. A research report of SBI also said that banks may be dissuading corporate borrowers from restructuring their loans.

“Even though we have to do 15% provisioning for declaring NPAs, compared to 10% in the debt restructuring scheme, we find the former a better option in many cases,” said a bank official who did not wish to be named.

Explaining the rationale, he said that even though banks have to provide only 10% for recasting a loan under debt restructuring scheme, the reversal of provisioning will take a lot of time. A borrower needs to make 30% debt repayment to bank for reversing the whole provisioning, as per August 6 circular of Reserve Bank of India (RBI). While, if the bank declares an account as NPA, the borrower still has an option of availing debt restructuring under June 2019 circular of RBI, he added.

“You compare it with June 7 circular, where there is an NPA and you do restructuring, you need to make a 15% provisioning. But it will be upgraded, if the borrower just pays 10% of the amount,” he said. Not only this, but we have to go with all the stringent procedures for providing debt restructuring to borrowers, he further added.

Sanjeev Agarwal, partner, deals, PwC, said that current debt restructuring circular of the regulator has a problem, as it is delaying the reversal of the provisioning for the banks as compared to normal NPA restructuring. The Reserve Bank of India (RBI) had earlier allowed restructuring of personal and corporate loans strictly for the borrowers impacted by Covid-19 pandemic.

“In case, one-time restructurings are not actively invoked for resolution, there would be a large number of rating downgrades in January, 2021 and NPAs may rise from fourth quarter (Q4) of the current financial year,” Agarwal said. Till then, any company which had taken 6 months moratorium can avoid NPA situation by payment of one-month interest, he added.

Similarly, Anil Gupta, sector head, financial sector ratings, Icra, said that the slippages in the second half of the year (H2) will be much more than in the first half (H1). “The slippage rate in H1 of the financial year was less than 1%, and by the end of the year we see it to go up at 3.1-3.7% for financial year 2021,” he said.

Chairman of the largest lender State Bank of India (SBI), Dinesh Kumar Khara, had earlier said that the bank has received requests for restructuring of `6,495 crore loans so far. Furthermore, the lender is expecting additional restructuring requests of `13,000 crore by December, 2020. As per estimates, debt restructuring will be less than 1% of SBI’s total advances of `23.85 lakh crore. Similarly, Punjab National Bank (PNB) and Union Bank of India have halved their targets for restructuring to less than 3% of the loan book.

“If you go by the commentary of management of banks in the second quarter (Q2) results, 5-8% restructuring as per our estimates may look slightly on the higher side, but definitely 3-5% cannot be ruled out,” Gupta said. However, it is still early days and clear picture will emerge by December-January, he added.

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