Bad loans could hit a record high of Rs 9 lakh crore by the end of March 2017 with indebted companies still grappling with cash flow constraints as the economic revival continues to be elusive, according to two bankers DNA Money spoke to.
They said the government is particularly worried about four key sectors – power, steel, textiles and shipping – for which solutions are yet to be implemented.
A senior banker said,"We expect NPAs to rise substantially from the over Rs 6 lakh crore to about Rs 9 lakh crore, which excludes the stress in restructured accounts."
At the end of the third quarter ended December 31, 2016, the gross bad loans were at over Rs 7 lakh crore for both public sector and private banks, according to the data gleaned from bank's quarterly results.
"Government is particularly concerned about the power, steel, shipping and the textiles sector, which take up about Rs 10 lakh crore of bank credit," he said.
Of the Rs 5 lakh crore to the power sector about Rs 1.6 lakh crore are stressed, of the Rs 3 lakh crore extended to the steel sector about Rs 2 lakh crore is under stress.
In the steel sector alone two companies Essar Steel with a debt of over Rs 40,000 and Bhushan Steel with a debt of Rs 56,000 crore have gone bad.
Fuel linkages, demand and supply mismatches and tariffs continue to be major bottlenecks for the power plants.
The plants are ready but fuel linkages are absent. "The government now says all allocation will be through auctions so companies have to wait, which means cost overruns on projects will escalate and companies do not have cash flows to repay the banks. This is happening for major power plants," said the banker.
Another problem bankers face is the ability to sell off assets of the troubled groups. Kingfisher assets is a case in point where banks are saddled with high-value premium properties but unable to find buyers despite the reserve price coming down by close to Rs 20 crore in less than two years.
Another case is of public sector lender Syndicate Bank putting land bank owned by GVK Group in GVK Perambalur
SEZ Pvt Ltd in Tamil Nadu for sale as part of the recovery of its outstanding loan of Rs 175 crore.
According to a public notice issued by the bank on Thursday, the reserve price of the property that is spread across the 2,500 acre SEZ is over Rs 257 crore. There were no bidders for the first auction and the next auction is now for March 27.
The government's economic survey said Credit Suisse reported that around 40% of the corporate debt it monitored was owed by companies which had an interest coverage ratio less than 1, meaning they did not earn enough to pay the interest obligations on their loans.
The report said market analysts estimate that the unrecognised debts are around 4% of gross loans, and perhaps 5% at public sector banks. In that case, total stressed assets would amount to about 16.6% of banking system loans – and nearly 20% of loans at the state banks. This will include all the restructured loans and those that are waiting to be restructured.
Source: Daily News & Analysis