BackBanks able to dissuade corporate borrowers from debt recast, says SBI report
The report pointed out that the six-month moratorium on interest and instalment till August resulted in surplus in the hands of borrowers and provided confidence to service their loans without any restructuring
PremiumMumbai: Banks have been able to convince corporate borrowers not to apply for debt restructuring given the “negative externalities" and aggregate debt recast is not expected to breach the ₹1-trillion mark, said State Bank of India’s (SBI) Ecowrap report on Wednesday.
“In terms of numbers, assuming 15%-20% of the corporates had opted for moratorium, based on our earlier analysis, the restructuring amount originally envisaged was up to ₹7 trillion," Soumya Kanti Ghosh, group chief economic adviser, SBI said in the report.
Ghosh added that based on feedback and granular data analysis, only around 15-20% of the companies, from the said amount (of ₹7 trillion), may request for a debt restructuring which by most pessimistic estimates could be a maximum up to ₹1 trillion.
“For corporates, it is always a case of strict avoidance as better-rated corporates did not want the tag of restructuring as it could increase their pricing costs with fear of rating downgrade," said Ghosh.
For banks, he explained, it is always a cumbersome and time-consuming exercise with the monitoring costs, higher provisioning and in the extreme case if the account slips, post-recovery mechanism.
The report pointed out that the six-month moratorium on interest and instalment till August resulted in surplus in the hands of borrowers and provided confidence to service their loans without any restructuring.
That apart, additional debt given as emergency funding increased the liquidity in their hands, further facilitated by significant scaling down of employee and operational costs, the report said.
“In some cases, it is possible that locked-up fund elsewhere was used to repay back the debt," said Ghosh.
The report also said that RBI’s stress testing could now have a significant upward bias and the model needs to be relooked at.
“We believe that there is need to relook at the model for stress testing so that this will bring more efficient results (the difference between actual and projected gross non-performing assets (GNPAs) is as high as 290 basis points)," said Ghosh.
According to RBI’s financial stability report (July 2020), macro stress tests for credit risk indicate that the GNPA ratio of commercial banks may increase from 8.5% in March 2020 to 12.5% by March 2021 under the baseline scenario and the ratio may escalate to 14.7% under a very severely stressed scenario.
“Since the publication of first Financial Stability Report (FSR) in March 2010 RBI is doing stress testing using various scenarios and providing estimates of GNPAs. If we analyse the RBI’s projection of GNPAs for the last few years, we have found that there is a shift in that. While during FY15 to FY18, RBI’s projections are lower than the actual, in the years FY19 and FY20, actual numbers are much lower than the projections," he said.
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