Banks have been able to convince corporate borrowers to avoid applying for debt restructuring given that the “negative externalities” and aggregate debt recast are not expected to breach the ₹1-trillion mark, a State Bank of India report said on Wednesday.
“In terms of numbers, assuming 15%-20% of the corporates had opted for moratorium, based on our earlier analysis, the restructuring amount originally envisaged was up to ₹7 trillion,” Soumya Kanti Ghosh, group chief economic adviser, SBI said in the SBI Ecowrap report.
Ghosh added that based on feedback and granular data analysis, only 15-20% of the companies, from the said amount (of ₹7 trillion), may request for a debt restructuring, which, by most pessimistic estimates, could be a maximum of ₹1 trillion.
“For corporates, it is always a case of strict avoidance as better-rated corporates did not want the tag of restructuring as it could increase their pricing costs with the fear of rating downgrade,” said Ghosh.
For banks, he said, it is always a cumbersome, time-consuming exercise with the monitoring costs, higher provisioning and in the extreme case, if the account slips, post-recovery mechanism.
The report pointed out that the six-month moratorium on interest and instalment till August-end resulted in a surplus in the hands of borrowers, and provided confidence to service their loans without any restructuring.
That apart, additional debt given as emergency funding increased the liquidity in their hands, further facilitated by significant scaling down of employee and operational costs, the report said.
“In some cases, it is possible that funds locked-up elsewhere were used to repay the debt,” said Ghosh.
The report also said that RBI’s stress testing could now have a significant upward bias and the model needs a relook.
“We believe that there is need to relook at the model for stress testing so that this will bring more efficient results (the difference between actual and projected gross non-performing assets (GNPAs) is as high as 290 basis points),” said Ghosh.
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