Mumbai: The ongoing bulk loan restructuring by Indian banks may provide a temporary breather to their balance sheets in 2009-10, but provisioning may rise in 2010-11 if the economic slowdown deepens, analysts say.
The Reserve Bank of India (RBI) last year allowed banks to re-set terms of some loans where repayments have not been regular, barring those real estate and personal, to prevent them from being reported as non-performing loans amid the economic downturn.
“This will keep provisioning for FY09 and FY10 under a check,” rating firm Credit Analysis & Research Ltd. (CARE) said in a report.
Banks will save provisioning of up to 5% of the value of the restructured loans, it estimates.
Lenders have already reset loans worth more than Rs400 billion in 2008-09, mostly in the January-March quarter, and loans worth about Rs100 billion are under consideration for restructuring in the June quarter, analysts estimated.
The RBI loan resetting order in August last year is not applicable to consumer or personal loans, loans for capital market exposure and commercial real estate exposures.
Bankers say they are restructuring loans, which are normally standard assets with minor lapses in payment and the restructured assets could have turned bad if not attended.
“The loans being restructured are not bad one’s but has some temporary aberrations in payment schedules,” said MD Mallya, chairman and managing director of Bank of Baroda.
Bank of India, having loans worth Rs14 billion rupees under consideration for restructuring in the June-quarter, sees the loan restructuring helping them.
“These loans were standard assets as of now but may turn sticky if not attended,” said B A Prabhakar, executive director at the state-run lender.
But analysts are apprehensive that bank balance sheets won’t reflect the extent of bad loans, following the restructuring. Some of the reset loans may be those with no hope of recovery even after an economic revival, said CARE analyst Parag Jariwala.
“Investors will obviously not get the right picture,” added Hemindra Hazari, analyst with Karvy Stock Broking. The purpose is to show a better balance sheet, he said.
The banks should implement the circular in letter and spirit and restructure the loans that should be taking into account the borrowers’ repaying capacity, Abhishek Agarwal, analyst with Religare Capital Markets Ltd, said.
Angel Broking’s Vaibhav Agrawal says non-performing assets (NPAs) were expected to “remain stable” in this year, but may rise if the slowdown continues.
The bad loans may rise if borrowers of restructured loans start defaulting in case economy does not recover, said Saikiran Pulaverdhi, analyst at Centrum Broking.