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More than Rs 10 lakh crore loans may avail restructuring benefit: Bankers

New Delhi: Banks may restructure loans of more than Rs 10 lakh crore largely attributed to 5-6 critical sectors, including aviation, commercial real estate and hospitality, that have been severely hit by the COVID-19 outbreak, according to bankers.

Finance Minister Nirmala Sitharaman last week asked banks and NBFCs to roll out one-time loan restructuring scheme for COVID-19 related stress by September 15.

According to a top official of a public sector bank, it is win-win for both lenders and borrowers. Explaining the rationale, the banker said, corporates will try to save their business from turning non-performing asset (NPA) and buy crucial time for getting cash flow back for servicing the debt.

Secondly, banks have to make only 10 per cent provision against restructured account as compared to 15 per cent if the same account turns into NPA, the official said, adding that the lure of 5 per cent conservation of capital will also push banks for recast.

Given the benefit, the official said, it is estimated that 12-15 per cent of total loan book would avail one-time restructuring.

Micro, small and medium enterprises (MSMEs) are already covered under the ongoing restructuring scheme which was tweaked recently to cover those impacted by COVID-19 crisis. It is to be noted that a total Rs 100 lakh crore worth of loan is outstanding in the banking system.

Another banking official said that nearly half of the 30 per cent of the total loan book which sought moratorium, that ended on August 31, may avail restructuring.

Companies in about half-a-dozen vulnerable sectors — hospitality, aviation, entertainment, commercial real estate and travel & tourism -- whose businesses have been impacted severely due to the COVID-19 crisis will make a beeline for the scheme. K V Kamath committee report is expected to give financial parameters like hair cut, debt service coverage ratio, debt-equity ratio post-resolution and interest coverage ratio for recasting corporate loans for over half a dozen vulnerable sectors, the official added.

Last month, Punjab National Bank managing director S S Mallikarjuna Rao said about 5-6 per cent of loan book would go for restructuring as per RBI-approved guidelines.

This 5-6 per cent comes to about Rs 40,000 crore. Major composition of this, of about 50 per cent, would be corporate books, he had said.

Echoing similar views, Resurgent India managing director Jyoti Prakash Gadia said about 5 per cent of the loan book would go for restructuring on the conservative side.

With tighter debt recast norms announced by the Reserve Bank, the likely restructuring by banks will be around 5-8 per cent of their overall loan book, said a report by rating agency ICRA.

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