India’s top eight banks restructured 32,586 crore of loans in the quarter ended 31 March, the highest in the last one year, as they made the best use of the restructuring window which closed that month.

Total loans restructured by these large banks more than doubled from 12,498 crore that they restructured in the preceding three months, according to data compiled by Angel Broking Ltd.

Public-sector banks did most of the restructuring, according to Vaibhav Agrawal, vice-president of research at Angel Broking.

“Public-sector banks have seen a significant jump in the amount of loans restructured in the January-March period, as compared with those restructured in the October-December as most banks tried to take advantage of the regulatory forbearance, which ended on 31 March 2015," said Agrawal.

The top-five public-sector banks restructured more than 90% ( 29,655 crore) of the total loans restructured by large Indian banks.

The Indian banks have been restructuring stressed corporate loans as projects stalled due to delays in securing government approvals, sluggish consumer demand and high borrowing costs made it difficult for many borrowers to repay debt. However, the Reserve Bank of India’s (RBI) deadline for restructuring without the loan being classified as bad asset ended on 31 March.

Restructuring involves giving companies more time to repay a loan or lowering interest rates to help them tide over tough times.

Purvesh Shelatkar, the head of research at Bank of Baroda Capital Markets Ltd, said that public sector banks have dumped loans into restructuring to make best use of the RBI forbearance.

“Even for loans on which there was a little doubt of repayment, these banks have chosen to restructure. In a way, they have taken into account the worse; so, things could only get better from here," said Shelatkar, adding that public-sector banks have generally restructured more loans than their guidance for the quarter.

“State Bank of India (SBI), for example, restructured more than 10,000 crore of loans during the quarter, more than double of the 5,000 crore they had guided for," said Shelatkar.

Data from Angel Broking show SBI restructured loans worth 11,885 crore in the March quarter, by far the highest among banks and up from 4,092 crore it restructured in the December quarter.

Punjab National Bank (PNB) restructured the second highest loans at 7,880 crore, three times the 2,558 crore it restructured in the December quarter.

Among private-sector banks, Axis Bank Ltd restructured the largest amount of loans during March quarter at 1,540 crore up from 132 crore in the December quarter, and highest since 1,116 crore restructured in the March 2014 quarter.

The restructuring is in line with expectations and comes especially from infrastructure loans, said Ananda Bhoumik, senior director and head (financial institutions) of India Ratings & Research.

“In March 2014, we had noted that about 20% of the infrastructure piece on public-sector bank loan book had been restructured. We had predicted that this number would go up to 40% of their infrastructure loans in the next two to three years. The large restructuring we saw in January-March was largely from infrastructure loans and this will continue during this year as well," said Bhoumik.

Bankers too blame the higher restructuring on infrastructure loans. C.V. Rajendran, chairman and managing director, Andhra Bank, said that out of the 3,313 crore it restructured in the quarter, 2,038 crore was from the infrastructure sector.

“We expect this to be the end of restructuring as far as Andhra Bank is concerned. There seems to be nothing left in the pipeline for the rest of the year for us. Any stressed account left would largely be something that is likely to become a non-performing asset," he said.

In the financial year ending March 2016, the process through which banks restructure loans will also change as banks use joint lenders forum (JLF) to decide on restructuring.

As soon an account stops paying interest for over 60 days, the bank with the highest exposure to a particular borrower constitutes a forum of all the lenders to the asset. This forum then takes a call on whether the borrower requires any financial assistance or restructuring to regularize payments or if recovery efforts need to be deployed.

The main difference between the JLF mechanism and the CDR cell is that unlike the cell, the lenders’ forum is mandatory. Additionally, any delay in decision-making and implementation of the corrective action plan, will lead to monetary penalties on banks in the form of accelerated provisioning.

However, the heavy restructuring has clearly had an impact on the profitability of public sector banks. Data analysed by Mint shows that the net profit of public-sector banks dropped 18% in the quarter ended March 2015, the sharpest such drop since December 2013.

An executive director at a large public-sector bank said that when the large amounts of loans are restructured, provisioning for these assets hits profitability.

“Apart from the 5% standard asset provisioning for restructured assets, banks are also expected to provide for any diminution in fair value of the asset and any moratorium that the banks may give to the borrower. This meant that profitability was under significant pressure," he said, requesting anonymity because he is not authorized to speak to reporters.

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