CDRs down but bilateral loan rejigs up, will get worse
The latest set of numbers on loan restructuring by the Corporate Debt Restructuring (CDR) Cell seem to suggest that such recasts may have peaked—from R5,848 crore in April, loans recast in May dropped off to R804 crore; the total amount restructured last year was close to R77,000 crore. While it is too early to call a trend, banks are still going to be grappling with large restructurings bilaterally; for FY13, the amount restructured bilaterally by nine larger banks was an estimated R1.2 lakh crore. That number is expected to go up significantly this year especially on account of the Financial Restructuring Package (FRP) for the state electricity boards (SEBs) which envisages rejigging of short-term liabilities to the tune of R1.9 lakh crore.
Although these loans will not be classified as ‘restructured’ since they have been given a special dispensation by RBI, in essence they are just that. So far some R82,000 crore of debt has been reworked for the states of Uttar Pradesh, Tamil Nadu and Rajasthan, on which banks will take a hit of 200-300 basis points since the interest charged will be lower and a three-year moratorium on the principal will be allowed. The success of the FRP is predicated on the state government increasing power tariffs—this is mandatory—so that the balance sheets of the discoms become healthier; last year almost all states announced tariff hikes while in the first two months of FY14, 19 states have filed a tariff petition revisions with the regulators. While that is an encouraging trend, even if in some cases, the hikes are coming off a relatively small base and after a long gap, no state government seems as yet serious about privatisation in the power distribution space. Indeed, the UP state government did announce some measures to this effect, but quickly backtracked when the unions protested. It is too early for banks to heave a sigh of relief.