Banks persuading corporates to not recast debts: SBI report

Banks may be dissuading their corporate borrowers from restructuring their loans and that could result in the quantum of debt recast being much lower than anticipated earlier, State Bank of India’s (SBI) research team said in a report on Wednesday. The quantum of corporate debt restructuring could stand at Rs 1 lakh crore, as against Rs 7 lakh crore envisaged earlier, the report said. It also made a case for revisiting the Reserve Bank of India’s (RBI) methods of stress
testing.

“We believe, in this scenario what is currently happening is that banks have been largely able to convince the corporates not to go for a restructuring given the negative externalities,” the report said, adding, “In terms of numbers, assuming 15%-20% of the corporates had opted for moratorium, based on our earlier analysis, the restructuring amount originally envisaged was up to Rs 7 lakh crore. We estimate based on our feedback and granular data analysis that only around 15-20% of the companies, from the said amount, may request for a debt restructuring which by most pessimistic estimates could be a maximum up to Rs 1 lakh crore.”

However, sectors such as micro, small and medium enterprises (MSMEs) and agriculture might continue to see stress for some time and require monitoring and handholding. In the agriculture segment, the know-your-customer (KYC) updates of existing borrowers could not be carried out because of the lockdown, as a result of which the accounts turned delinquent. Some of this is now being pulled back, the report said.

The report further said that some companies have deliberately reduced the loanable funds during H1FY21 by reducing their liquid assets — cash and bank balance in the balance sheet — and this held them in good stead.

Also, even though several sectors have reported a de-growth in key parameters, these sectors were found to have reduced cost wherever possible to stay afloat. “Many sectors also reduced employee cost ranging from 5% to 30% , though it may impact consumption adversely in future,” the report said.

It said that there is a need to revisit the RBI’s stress tests now because in the years FY19 and FY20 and ultimately in FY21, actual numbers might be much lower than the central bank’s projections. “For FY21 also we believe that gross non performing assets (GNPAs) would be lower than 12.5% (as slippages are in single digits only based on the banking results so far). We believe that there is need to relook at the model for stress testing so that this will bring more efficient results (the difference between actual and projected GNPAs is as high as 290 basis points).