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Banks crack whip on debt rejig

By Abhijit Lele
March 15, 2016 12:57 IST
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DebtGovt asks lenders to focus on all defaulters not just high-profile ones

Banks have given a stern message to companies under debt restructuring, especially steel firms: Shape up or ship out.The government has asked the lenders to focus on recoveries from all defaulters, and not just high-profile ones.

An executive with a public sector bank said there were a few meetings, at State Bank of India headquarters, where some accounts were reviewed as part of a two-day lenders’ meeting that started on Monday.

Kingfisher Airlines’ accounts  were not discussed.

The accounts discussed included those of Bhushan Steel, Visa Steel, and Electrosteel Steels. Bhushan Steel’s lenders had not opted for strategic debt restructuring,  where a group of lenders converts a part of a loan in an ailing company into stock, with the group owning at least 51 per cent stake.

Lenders to Visa Steel and Electrosteel Steels had decided on SDR.

Debt restructuring plans were already being implemented.

The meeting was to ensure these plans stayed on course.

An SBI executive said with a minimum import price for products, steel firms, especially ones with integrated units, would benefit over time.

The government had slapped MIP to discourage reported steel dumping by China.

Banks have been patient and flexible in rescheduling loans and are even giving additional facilities to stressed borrowers to help them. “

The assessment is the margins of steel players would be better, giving them the ability to pay over,” said an executive with a large public sector bank.

Outstanding bank credit to the iron and steel sector grew at 11.8 per cent to Rs 3,03,700 crore (Rs 3,037 billion) in the 12 months to January.

Steel is one of the most stressed sectors, with 52 cases of exposure worth Rs 54,051 crore (Rs 540.51 billion) being handled by the corporate debt restructuring cell.

The message from the government has been clear: Keep up pressure on defaulters for recovery.

The loan meeting comes after the central bank carried out a review of several banks and asked them to recognise certain assets as non-performing ones.

The central bank later said it was working with the government and banks so that stressed assets could be recognised on an active basis.

This was to ensure a bank’s balance sheet reflected a true and fair picture and was adequately provisioned.On bad loans, rating agency CRISIL had last week said a sharp rise in amounts to be set aside for stressed loans could force nine or 10 of the 26 public sector banks to report losses in the next financial year.

Besides the provisioning, factors such as a dent in interest income, the new regime to price loans and the scheme to revive power distribution companies might shave off 10 basis points from their net interest margin.

On Thursday, the rating agency effected a major rating action -- downgrades and change in outlook -- on bonds of PSBs.

They will continue to have asset quality problems in 2016-17, it said.

Illustration by Uttam Ghosh/

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Abhijit Lele in Mumbai
Source: source

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