Mumbai: The Reserve Bank of India (RBI) has provided a breather to banks that have exposure to the Jaypee Group by allowing them to classify loans to the group as standard assets for the January-March quarter, three bankers in the know said on condition of anonymity.
On Thursday, The Economic Times first reported that the banking regulator had reduced the burden of provisioning on banks by removing some names from the list of stressed accounts, including Jaiprakash Associates Ltd.
“The group has made some additional efforts to ensure that repayment happens as per schedule. This allows us to give them some more time as a standard account," said a senior official at a public sector bank that has exposure to at least two of the group’s companies.
A spokesperson for Jaiprakash Associates did not immediately reply to an email.
JP Associates, the group’s flagship company, and Jaypee Infratech Ltd were both set to be classified as non-performing assets during the quarter after the RBI’s stringent asset quality review (AQR) that took place in December.
After the AQR, each bank was given a list of accounts which needed to be classified as either weak or non-performing and additional provisions were required to be made as part of the third or fourth quarter results.
Bankers, however, have made significant effort to help the company trim its debt in the last three months.
Over the last two months, Jaypee Infratech has provided additional pockets of land along its Yamuna Expressway to banks, in order to reduce its debt. Additionally, the company has also handed over the Jaypee Group headquarters in Noida to Axis Bank to reduce debt worth around ₹ 700 crore. Lenders can sell these properties and recover the loan amounts as and when they find the right buyers.
JP Associates, on 31 March, also completed the sale of a majority of its cement business to Ultratech Cement for ₹ 15,900 crore. It is also in the process of appointing a consultant to reorganize its operations and ensure that its large debt is right sized.
The Jaypee Group had an estimated debt of around ₹ 75,000 crore as of 31 March 2015, according to the October 2015 edition of Credit Suisse AG’s House of Debt report.
Jaypee Group companies are the only large names that were included in the RBI’s list of exempted accounts, while most others were smaller companies, according to the second of the three bankers quoted above.
“We believe this could ease the pressure on banks that had spread the impact of the RBI’s asset quality review (AQR) over two quarters and recognized only 50-70% of NPAs (non-performing assets) in Q3," Religare analysts Parag Jariwala and Vikesh Mehta said in their report on Thursday.
“Banks are expected to report high treasury gains in Q4 since G-sec (government security) yields have declined by 30 bps (basis points) QoQ (quarter-on-quarter) and if slippages turn out to be lower than anticipated, earnings could surprise positively as compared to our and consensus estimates," the report said.