Indian Overseas Bank's (IOB) exposure of over Rs 100 crore to the debt-ridden Kingfisher Airlines will turn a non-performing asset (NPA) for the third quarter ended December 2012. Lenders led by the State Bank of India (SBI) are also working on Suzlon Energy Ltd's corporate debt restructuring (CDR) package. The lenders' exposure to the financially-stressed Tulsi Tanti- promoted wind energy firm is above Rs 10,000 crore.
Most lenders with loan exposures of over Rs 7,500 crore to the Vijay Mallya-owned airline have already declared their loans as NPAs in 2011-12. They have made provisions in excess of regulatory norms. Kingfisher Airline's debt was restructured in November 2010. A senior IOB Bank official says "There is no other way but to treat it (Kingfisher) as NPA for September-December 2012. It will entail substantial provision."
This is not the only account, which will create worries for the Chennai-based public sector lender. Its exposure in excess of Rs 800 crore in Suzlon Energy Ltd will also require provisioning. According to IOB officials, since Suzlon has already been admitted for CDR, it will not be treated as NPA. However, the bank will have to make provision for a restructured asset in the third quarter of FY13.
IOB's gross NPAs grew to 3.87 per cent at end-September 2012 from 2.74 per cent at end-March 2012. Its restructured loan portfolio grew to Rs 14,775 crore from Rs 12,641 crore in the same period.
The Reserve Bank of India (RBI) has already sounded a warning to banks on falling debt servicing capability of Indian companies, leading to further ballooning of bad loans. In its financial stability report (released on December 28), it said their ability to service debt has been falling since 2009-10. Some industrial groups with greater exposure to key infrastructure sectors such as power, have witnessed high growth in leverage in recent years.
The interest coverage ratio, which reflects the ability to service loans with present profits, has fallen since 2009-10 and is currently below the levels of 2008-09. The fall in interest services capability is more pronounced in the case of companies with lower sales.