Loan Restructuring On Anvil for Aviation, Realty & Hospitality
Banks may restructure loans of more than Rs 10 lakh crore largely attributed to 5-6 critical sectors, including aviation, commercial real estate and hospitality that have been severely hit by the COVID-19 outbreak.
Finance Minister Nirmala Sitharaman last week asked banks and NBFCs to roll out one-time loan restructuring scheme for COVID-19 related stress by September 15.
A total Rs 100 lakh crore worth of loan is outstanding in the banking system and nearly half of the 30 per cent of the total loan book which sought moratorium that ended on August 31 may avail restructuring.
Companies in about half-a-dozen vulnerable sectors — hospitality, aviation, entertainment, commercial real estate and travel & tourism — whose businesses have been impacted severely due to the COVID-19 crisis will make a beeline for the scheme.
According to bankers, it is estimated that 12-15 per cent of total loan book would avail one-time restructuring. Micro, small and medium enterprises (MSMEs) are already covered under the ongoing restructuring scheme which was tweaked recently to cover those impacted by COVID-19 crisis.
Corporates will try to save their business from turning non-performing asset (NPA) and buy crucial time for getting cash flow back for servicing the debt. On the other hand, banks have to make only 10 per cent provision against restructured account as compared to 15 per cent if the same account turns into NPA. The lure of 5 per cent conservation of capital will also push banks for recast.
With tighter debt recast norms announced by the Reserve Bank, the likely restructuring by banks will be around 5-8 per cent of their overall loan book, said a report by rating agency ICRA.Punjab National Bank managing director S S Mallikarjuna Rao said about 5-6 per cent of loan book would go for restructuring as per RBI-approved guidelines. Resurgent India managing director Jyoti Prakash Gadia said about 5 per cent of the loan book would go for restructuring on the conservative side.
The RBI last month permitted one-time restructuring of both corporate and retail loans without getting classified as a non-performing asset (NPA). Restructuring benefit can be availed by those whose account was standard on March 1 and defaults should not be over 30 days.