Restructured loans in the banking industry have almost doubled in 2009-10, shows a study by Karvy Stock Broking on top 28 commercial banks.
The broking firm study shows that standard restructured assets stood at Rs 1,11,057 crore for 2009-10 compared with Rs 65,956 crore in the previous year. Restructured loans are those loans, wherein banks extend the tenure and revise the interest rate downwards and sometimes even take a haircut on principal outstanding loans. There are two categories of loans — standard restructured and sub-standard restructured loans (sub-standard restructured assets are part of net non-performing assets).
It is alarming that banks continue to show higher profits even as their asset quality has deteriorated. The 28 banks reported a net profit of Rs 47,797 crore for FY10, a 15% rise over the previous year. The study showed that standard restructured loans (at Rs 111,057 crore) tripled the size of net NPA at Rs 33,518 crore and the gross NPA at Rs 71,126 crore in FY10.
The study also showed that net NPA, coupled with standard restructured loans, was as high as 49% of the bank’s net worth. “This means that if restructured assets, even as they are in standard category are much larger than a bank’s gross NPA, there is a danger that a huge quantum of this could slip into the bad loan category. This means that most banks are in a highly precarious position as of now,” pointed out Mr Hazari, the author of the study on stressed assets in Indian banking.
A study by Standards & Poor’s said: “We expect 25-50% of the restructured loans to slip into NPL in the next two years. Textiles, gems and jewellery, commercial real estate, transportation, unsecured retail credit and cyclical sectors such as metals are most vulnerable to such slippages.”
Banks, like Bank of Baroda, Central Bank of India and Corporation Bank, saw a rise in gross NPA and net NPA in the quarter ended June 2010 over the corresponding quarter last year.
The quantum of restructured assets jumped sharply after RBI gave one-time dispensation to banks to overcome the global meltdown of 2008. RBI had said if a bank restructures a loan, which is a standard loan as on September 1, 2008, it can continue to classify it as a standard asset post-restructuring, provided the loans are restructured before June 2009.
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