BackBanks to recast Rs5,000 crore loans in Jammu and Kashmir
Loans to be restructured at rates close to the bank's base rate, or the minimum lending rate of a bank
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Mumbai: India’s banks will restructure more than ₹ 5,000 crore in loans disbursed to borrowers in Jammu and Kashmir, which was devastated by floods last month.
Individual borrowers can restructure their loans until March 2015 and seek a two year moratorium to repay loans. After the end of two years, the borrowers will get seven years to repay their loans, said Chennai-based Indian Bank chairman and managing director T. M. Bhasin, who is also the head of Indian Banks’ Association (IBA), the apex bankers’ lobby.
The loans would be restructured at rates close to the bank’s base rate, or the minimum lending rate of a bank, said bankers.
For companies, working capital and medium term loans will be converted into long-term loans, payable through equated monthly instalments, they said.
Bhasin and other bankers were on a two-day visit to the state to work out the proposed restructuring plan.
“The Reserve Bank of India (RBI) has said the relief package will not treated as restructuring," said Bhasin. When a loan is restructured, a bank has to set aside additional funds in the form of provisions, which hits profits of a bank and restricts its ability to lend further.
According to Bhasin, 60% of the restructuring will be done by Jammu and Kashmir Bank Ltd, which is the lead bank of the state.
“They have estimated that about ₹ 3,000 crore of their loans will need to be restructured. Going by that, the restructuring done could be more than ₹ 5,000 crore for all banks. Of course, individual banks will have to come to the figure on their own," Bhasin said.
Even though restructuring will help prevent a surge in bad loans, restructuring at lower rates could hit banks like Jammu and Kashmir Bank, according to an analyst with a local brokerage firm who declined to be named.
“The bank’s average yield of advances is 12.5%. Now if they have to give loans at its base rate of around 10%, it is a straight 2.5% hit on income. Also, even if the restructured loans are not turning delinquent, the asset will nevertheless be stressed. The bank will have to struggle in the coming quarters," the analyst said.
On 31 March, Jammu and Kashmir Bank’s total advances were ₹ 46,385 crore. According to analysts, 75% of the bank’s credit is disbursed in the state. The bank’s stock has fallen 14.95% from 1 September and closed at ₹ 131.95 on Tuesday, down 2.04%.
Overall, Indian banks have 739 branches in the state, of which 456 branches are operational, an RBI official said in a media briefing on 16 September, news agency PTI had reported.
In addition to the restructuring package announced by banks, the National Housing Bank, India’s housing mortgage regulator, will be giving loans of up to ₹ 500 crore to banks at 6.5% interest. Banks can lend that to customers at an interest rate of 8.5%, subject to a maximum of ₹ 10 lakh per borrower. This is lower than the 10-12% rate of interest applicable to housing loans under normal circumstances.
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