With many large public sector banks (PSBs) reporting a decline in net profit for the July-September quarter, mainly due to higher provisioning for loans gone bad, most have also seen an increase in restructured debt portfolios.
According to bankers, the second quarter restructuring was characterised by smaller accounts from mid-corporates and the small and medium enterprises (SME) sector.
A Ravindranath, in charge of the corporate debt restructuring cell at IDBI Bank, said, "Small and medium units from textile and pharma (sectors) are showing stress and went for a recast in the second quarter; also, there were some from the iron and steel sector. Going forward, most of the restructuring would be from the SME sector."
State Bank of India had said loans of around Rs 200 crore to Hindustan Construction and Jai Balaji Industries each were restructured. "Higher loan slippage (Rs 8,500 crore) and elevated restructuring (Rs 4,700 crore) in the second quarter (for SBI) reinforces our negative stance on the stock, as we feel the weak macro-economic environment would continue to exert strain on asset quality amid cautious loan book expansion," said Nirmal Bang Securities in a note.
In recent years, the restructuring of advances has been an important channel used by banks to contain the deterioration in asset quality caused by burgeoning non-performing assets (NPAs), the Reserve Bank of India said in its report on banking trends in India for 2011-12.
Indian banks added Rs 35,956 crore in gross NPAs in the first half of this financial year, according to data sourced from Capitaline.
A senior PSB official said, "If the overall economic situation continues to be the same way it is, that might increase the cost for banks in recovering the money as the chances of a one-time settlement increase. Banks might also have to do some writeoff."
Shubhalakshmi Panse, chairperson and managing director, Allahabad Bank, said, "Restructuring continues to happen in big accounts; however, smaller accounts are also getting restructured. We have a very limited number of big accounts and the number is more in smaller value accounts, so it gets talked about."
While debt recast and slippages have increased, which has forced banks to make higher provisioning, there has also been a decline in the provision coverage ratio (PCR) of leading banks such as SBI, Punjab National Bank and Central Bank of India . SBI's ratio dipped to 62.78 per cent from 63.5 per cent a year ago during the April–September period.
"While we take cognizance of the little headroom available for the bank during the quarter in respect of provisioning due to tepid net interest income growth, we believe there would be higher provisioning in the coming quarters, as the coverage ratio currently is low," Nirmal Bang said.
Earlier, RBI had mandated banks to have a minimum 70 per cent PCR but withdrew this in September 2011 as asset quality pressure on banks started increasing. However, private sector banks are still maintaining a PCR above 70 per cent. For instance, ICICI Bank had 78.7 per cent and HDFC Bank one of 82 per cent.
(With inputs from Abhijit Lele)