Lenders could see 5-8% of their loan books restructured under rules issued by RBI
Banks have started tapping consultants to prepare viability studies for corporates who need debt recast and to project cash flows to meet financial parameters specified by the Reserve Bank of India by March 2022.
This as lenders gear up for a massive exercise that could see about 5-8% of their loan books restructured under the rules issued by the RBI.
Two senior bankers said consultants have begun working on a few large accounts while banks are readying to sign inter-creditor agreements. The agreements, mandated by RBI, will help build a consensus among lenders on resolution plans. Such elaborate exercises are essential only for corporate loans, which will make recasting loans much simpler.
“There are techno-economic viability (TEV) studies, ratings and valuations to be done before debt recast and consultants have begun preliminary assessments. Typically, banks get the TEV studies done, while stressed borrowers submit their own proposals for debt recast, later vetted by us," said the chief executive of a public sector bank.
TEV is a useful tool for lenders as it can be used to ascertain how a loan will perform after a debt recast. The study is typically divided into three sub-categories of technical feasibility, market potential and financial viability, and takes at least a month to be completed.
RBI has put in place strict entry barriers for companies seeking relaxations in repayment terms. The increased oversight became essential after lenders went on a recast binge the last time such forbearance was allowed. RBI has also said that lenders and borrowers need to agree on the resolution plan by 31 December, and implement it within another 180 days.
Jyoti Prakash Gadia, managing director, Resurgent India, said it was approached by banks, seeking a ramp up of operations to meet increasing demand for TEV and other such services. The firm provides services like debt syndication, valuation, and credit assessment. Gadia said they are already empanelled with lenders. “We are discussing with lenders on how to recast deals should be structured so that most eligible companies are able to avail of the benefit. Another thing we are working on is the cash flow projections of stressed companies, keeping in mind that several businesses may not be able to post encouraging numbers in the first two quarters of this financial year," said Gadia.
On 7 September, the RBI released the recommendations of an expert committee led by former ICICI Bank chief executive K.V. Kamath to recommend eligibility parameters for the restructuring of stressed loans.
Kamath said in an interview on Tuesday stipulated timelines in the debt recast circular subtly puts pressure on the system for quick resolution. “Resolving (stressed assets) quickly is the best for my client and for me as a banker. This is the boundary condition put in by RBI. That pushes the system for resolution by this fiscal," said Kamath.
Meanwhile, experts are hopeful that a majority of stressed assets will be eligible for debt recast, provided repayments are not overdue by more than 30 days as on 1 March. Nearly two-thirds of companies rated by Crisil would be eligible for one-time debt restructuring based on the parameters proposed by the committee, the rating agency said in a note on Thursday. Crisil said it studied its rated-portfolio of more than 8,500 companies.
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