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MUMBAI : Banks and non-banks will restructure up to 10 trillion in debt or 8% of outstanding loans under the one-time debt recast scheme announced by the Reserve Bank of India, rating agency Icra said on Wednesday.

“We feel the overall restructured portfolio will come at 5-8% of overall loans," Karthik Srinivasan, senior vice president and group head, Icra, said at a webinar on Wednesday.

In value terms, he said the total quantum of debt that can get restructured will be between 6 trillion and 10 trillion, specifying that banks have an asset book of 100 trillion while non-banks have 35 trillion.

Stressed sectors like hospitality, real estate, textile, and travel and tourism operating on high leverage, which availed 60% of the moratorium, could see some loan recast.

Srinivasan said the estimate on the amount of portfolio to be restructured is based on an assumption that the overall assets under moratorium declined to 20-25% by the close of the six-month relief in August.

This comes after the K.V. Kamath committee issued recommendations on the financial parameters that banks need to follow while restructuring sectors affected by the pandemic. These parameters include total outside liabilities to the adjusted tangible net worth (TOL/ATNW), current ratio, total debt/Ebitda, average debt service coverage ratio and debt service coverage ratio.

According to Icra, the proportion of the overall loan book under moratorium will fall to around 15% by the end of the September quarter. The rating agency has taken a large number of negative rating actions since the onset of the coronavirus disruption and the lockdown, affecting around 16% of its rated portfolio.

Icra said it expects most of the recast proposals to adhere to the financial parameters set by the RBI and meet the March 2022 deadline.

Lenders will be able to immediately adhere to the metric of total outstanding liabilities to adjusted tangible net worth, it said. Some sectors may, however, face challenges on meeting other metrics such as total debt to operating profit, debt service coverage ratio and average debt service coverage ratio.

“As per Icra’s analysis of the BBB and the BB category entities in its portfolio—across sectors—the actual reported TOL/ATNW and current ratio is observed to be sufficiently comfortable in relation to the thresholds specified by the expert committee. However, for several sectors, the total debt/Ebitda and the DSCR thresholds specified by the expert committee are less aligned with the actual ratios reported by the investment grade entities. From a rating perspective, this implies that if the loans are restructured in a cut-to-bone manner that the specified metrics are just met, without a further cushion, an investment grade rating might be difficult to achieve," it said.

Icra said there may be a dip in the NPA levels as a part of the stressed advances get recognized as restructured, making it clear that the overall quantum of stressed advances in the system will not decrease.

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