Restructuring of loans, which many feared was a way of delaying the recognition of bad assets, may be proving to be just that, if the experience of India’s largest private sector lender is any indicator.

ICICI Bank Ltd, which announced its fourth quarter and financial year 2014-15 earnings on Monday, reported a jump in its gross bad loans as chunky restructured assets turned bad.

In absolute terms, gross non-performing assets (NPAs) at ICICI Bank jumped to 15,094 crore as of 31 March 2015 compared to 10,505 crore at the end of the March 2014 quarter. That’s an increase of 43.6% in a year. Incidentally, this is also the steepest annual jump in gross bad loans seen by the bank in at least the last four financial years. In percentage terms, gross NPAs rose to 3.87% of total loans—the highest since the December 2011 quarter.

A large part of these bad loans have accumulated in the last two quarters and the management admits that maximum additions to gross NPAs have come from restructured loans going bad. Chanda Kochhar, chief executive officer of ICICI Bank, blames this on a slower-than expected revival in the economy and adds that the slippages have come from across sectors.

Across the industry, about a quarter of restructured assets have turned bad, said Kochhar, while declining to share the exact proportion of restructured loans turning bad for ICICI Bank.

“Restructuring of assets has been a useful exercise but it all depends on how fast the economy turns and has it kept pace with the assumptions made at the time of restructuring," said Kochhar during the post-earnings conference call with the media.

Kochhar adds that the recovery has been more volatile and gradual than expected, which is the reason behind restructured loans turning bad. Restructured loans have slipped into the bad asset category across a wide range of sectors, she said.

This raises the question—did bankers make over-optimistic projections about a recovery in the economy?

Based on a revised series of GDP data, the Indian economy is expected to have grown at about 7.4% in fiscal year 2015, compared to 6.9% in the previous year. Growth in 2015-16 is seen at about 7.8%, based on projections made by the Reserve Bank of India. Were bankers really expecting a steeper recovery than that?

In their defence, one problem may be that stalled projects are not coming back on-stream as quickly as expected. At the same time, some individual promoters have become over-leveraged and are no longer in a position to pump in the equity required to restart some of these projects.

To be sure, the government has assured that it is working to kick-start stalled projects. According to a Press Trust of India report on Saturday quoting minister of state for finance Jayant Sinha, the government is working to restart 1,400 stalled projects which are keeping the banking sector under stress.

The success of those efforts will be crucial in determining the success of the mammoth restructuring exercise undertaken by the country’s banks in the last few years.

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