Cumulative loan restructuring will touch Rs 3.25-lakh crore by March 2013.

Banking sector’s provisioning requirement would increase by Rs 15,000 crore between April 2013 and March 2015 if the Reserve Bank of India implements its draft guidelines on restructuring of advances in the current form, said Crisil.

Consequently, banks’ profits could be lower by around 7 per cent in this period.

The credit rating agency termed the withdrawal of regulatory forbearance for restructured loans and the tightening of the process of restructuring as positives.

“These stipulations will enhance the confidence of stakeholders in banks’ asset quality and discourage large-scale restructuring activity,” said Crisil.

Pointing out that cumulative loan restructuring will reach Rs 3.25-lakh crore by March 2013, the rating agency said the revised guidelines will result in a Rs 15,000-crore increase in the provisioning costs for banks over the next two years.

This quantum (of restructuring) factors in the combined impact of higher provisioning (of 5 per cent by March 2015) on existing stock of restructured loans, and expected incremental restructuring.

The impact of higher provisioning will be greater on public sector banks, as they account for around 85 per cent of the total loan restructuring, said Crisil.

Loan restructuring activity will continue over the near term, albeit at a slower pace.

There could be a steep increase in banks’ reported bad loans percentage from 3.6 per cent as at September-end 2012 to as high as 6.5-7.5 per cent as at June-end 2015, cautioned credit rating agency ICRA.

This jump in bad loans could happen if the draft RBI guidelines on asset classification and provisioning norms for restructured loan accounts turn into reality.

The credit rating agency said the rise in bad loans will be because regulatory forbearance on classification of old restructured advances (except for infrastructure loans yet to achieve commencement of operation) would cease by April 1, 2015.

ICRA estimated that bad loans and standard restructured advances put together are likely to reach 9-10.3 per cent of total advances as on March-end 2013 from 7.5 per cent as on March-end 2012.

(This article was published on February 3, 2013)
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