The Hindu Business Line : PSBs may restructure loans given to auto component makers

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Restructuring involves converting some existing cash credit facilities into term loans.
Some export credit facilities may also be extended from 180 days to 270 days.

C. Shivkumar

Bangalore, Feb. 9 Public sector banks, led by the SBI group and associates, have begun working out a loan restructuring package for auto component makers in the country, who have been hit by delayed payments from the US automobile manufacturers.

Top bankers said that they were still working on the package. Most suppliers to the US automobile companies General Motors and Chrysler have been hit by payment delays. The payment delays, in turn, have resulted in some of them delaying and defaulting on their debt service payments to domestic banks. Component suppliers had got into payment difficulties since their exports were not backed by bank guarantees or letters of credit from GM and Chrysler’s banks.

But top bankers said that despite the payment delays and some defaults, banks were deferring a decision to convert the assets into substandard assets. The State Bank of Mysore’s Chief General Manager, Mr Dilip Mavinkurve, said, “We are resolved to support the auto component sector at this juncture.”

The restructuring involves converting some of their existing cash credit facilities into term loans. Besides, some of the export credit facilities extended to the auto component sector are likely to be extended from 180 days to 270 days, bankers said.

Besides, they said in the case of some of the cash credit converted into term loans, a moratorium on debt service payments could also be worked out. This facility was intended to provide a window of opportunity to the borrowing units to overcome the current liquidity crisis.

Bankers said that the restructuring plan was also made feasible on account of the US Government’s intervention in both automobile companies, staving off insolvencies. The US Government had extended a bailout of $13.5 billion to GM and another $1.5 billion for Chrysler. Therefore, the bankers said, the suppliers to these companies were expected to receive payments for their exports from both these entities when the US Government begins releasing the funds.

Risk covers

Banks had approached the Reserve Bank of India and the Government for reinstating export credit risk covers from the Export Credit Guarantee Scheme. ECGC and some private sector general insurers had suspended fresh exposures to American automobile suppliers last month, ahead of the US Government announcement.

ECGC guarantees export credits against payment risks by importers. Accordingly, exporters who take CRI covers would have a lower risk weighting of only 20 per cent, with the attendant benefits of lower borrowing costs.

However, bankers said that even after the reinstatement of the credit risk insurance cover, discounting of the export credit bills would be done only on a with-recourse basis.

Under this arrangement, non-receipt of payments on the bills allowed the banks to have recourse to the exporters for recovery of outstanding dues.

Lenders also stand to benefit from loan restructuring. Conversion of the loans into non-performing advances would have implied large provisioning on the advances, with a consequent impact on their respective balance sheets. With the restructuring, bankers said that the advances would continue to remain as standard advances.

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