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Business News/ Politics / News/  Restructured corporate loans to see sharp increase: Crisil
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Restructured corporate loans to see sharp increase: Crisil

Restructured corporate loans to see sharp increase: Crisil

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Mumbai: Rating agency Crisil Ltd raised its estimate for loans that Indian banks will need to restructure this fiscal year to Rs3.25 trillion from Rs2 trillion, mainly because of the stressed finances of state power companies besides other sectors.

“The majority of restructuring will be in loans to the state power utilities (SPUs) and the construction and infrastructure sectors," Crisil said in a release. “The rise is a result of significantly higher funding challenges being faced by companies with large debt."

Restructured loans in fiscal 2013 will account for 5.7% of the banking system’s total lending, Crisil said. Around Rs50,000 crore of the restructured loans are expected to become bad debt. However, Crisil does not see SPU loans becoming non-performing assets owing to state government support.

A loan becomes a bad debt when it’s not serviced for 91 days.

Even as the restructured amount is heavy, bankers are not unduly worried the serviceability of these loans.

“There are various entities in a power sector, banks have largely restructured the state electricity boards after they agreed to strict conditions that ensures their viability. We don’t envisage bad debts to pile up in this sector in future," said S.S. Mundra, executive director at Union Bank of India.

“By restructuring the intention is to address the problem and not to delay the problem. Restructuring itself could be an absolute necessity for the economy, there’s nothing wrong it," Mundra said.

Indian banks are not extending unsecured short-term loans to companies resulting into refinancing and liquidity pressure, especially for the SPUs.

“Furthermore, inability to raise adequate equity in a timely manner is straining the balance sheets and financial flexibility of developers in infrastructure and construction sectors, resulting in an increased likelihood of restructuring", said Pawan Agrawal, senior director, CRISIL Ratings.

According to Crisil, the large restructuring will help limit the increase in the banks’ NPAs in the near term even as bad debts are expected to rise to 3.5% by end March 2013 from 3% at the end of June 12. The increase will be driven largely by delinquencies in the micro, small and medium enterprises, and agriculture and allied sectors, the rating agency said.

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Published: 30 Aug 2012, 04:29 PM IST
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