Over 60 percent of Rs 8.4 lakh crore could slip into the non-performing assets (NPAs) category, and the restructuring will help banks’ bottom lines as the money to be set aside as provisions will be lower, the domestic ratings agency said.
The Reserve Bank of India (RBI) had announced a recast package which focused on a case-by-case approach for restructuring rather than a blanket or sectoral approach.
The central bank had also allowed small value non-corporate loans to be recast.
Unlike the earlier experience post the global financial crisis, when nearly 90 percent of the restructuring happened in corporate loans, the non-corporate segment, which includes small businesses, agricultural loans and retail lending, will account for a higher share this time, the agency said.
It estimated the total amount of non-corporate loans to be recast at Rs 2.1 lakh crore.
It further said the non-corporate segment was showing signs of stress even before the start of the COVID-19 pandemic, when things seemed to be normalising in the corporate space.
In the corporate segment, loans worth Rs 4 lakh crore of were already stressed before COVID-19 struck, and the same has gone up by over Rs 2.5 lakh crore. The jump in the non-corporate segment is more pronounced, as the stressed portion was only Rs 70,000 crore, which is now slated to go up to Rs 2.1 lakh crore, it said.
Within the corporate segment, the restructuring may range from Rs 3.3 lakh crore to Rs 6.3 lakh crore, depending on the strategies the banks adopt, the agency said, adding the range is so wide because it feels 53 percent of the pool is at high risk, while 47 percent is at moderate risk.
A high proportion of debt from real estate, airlines, hotels and other consumer discretionary sectors is likely to be restructured, but the largest contribution by quantum will be from infrastructure, power and construction sectors, it said.
In the non-corporate segment, the micro, small and medium enterprises will account for half of the loans which will be restructured, while the rest will be split evenly between agro and retail advances, it said.
Banks will start working on the restructuring as soon as the moratorium gets over by the end of this month and provide money accordingly, the agency said, adding the KV Kamath committee will look at advances of over Rs 1,500 crore and even in the case of large loans, the banks will do the groundwork in advance.
The overall provisions will be lower by 16-17 percent to 2.3 percent for the banking system, because restructuring requires banks to set aside only 10 percent of the loan outstanding as provisions while for NPAs, it is much higher, it added.