Top India Inc firms on bad loan watch list

Many leading Indian companies will be on the watch lists of banks as their loan dues mount. Aggressive lending to companies a few years back, especially during 2008-09, has forced banks to put Rs 2.04 lakh crore stressed corporate loans under special dispensation schemes for refinance or for a change in management for a strategic debt restructuring (SDR).

Many of these will be on the banks' watch lists, along with the accounts flagged by the Reserve Bank of India (RBI) in its third asset quality review for the financial year 2016-17.

A number of these accounts will get classified as non-performing assets (NPAs) if there is no resolution in sight.

Instead of waiting till March 2017, banks, under RBI guidance, are proactively trying to address and declare the stress to prevent any last-minute shocks.

Banks have been refinancing some of the big accounts such as Bhushan Steel (where lenders have an exposure of Rs 32,000 crore and about Rs 30,000 crore is under the 5/25 scheme), Hindalco (total exposure is Rs 32,000 crore and Rs 20,500 crore is for refinance), Bhushan Power and Steel (having an exposure of Rs 35,200 crore of which Rs 18,000 crore is being refinanced by the banks), Essar Steel (having an exposure of Rs 38,000 crore, of which Rs 14,500 crore is being refinance), Bharat Oman Refinery (having an exposure of Rs 14,600 crore of which Rs 10,600 crore is being refinanced) and Jaypee Infratech (whose entire exposure of Rs 10,300 crore is being refinanced).

Some of the banks have classified part of these loans as NPAs.

A portion of the stressed loans is also set aside for SDR, where the lender tries to change the management and bring in new management. But both these schemes are not able to turn around the accounts. About Rs 1.51 lakh crore loans have gone for refinance and Rs 89,000 crore for SDR.

The downturn in the commodity cycle has taken its toll on iron and steel companies, oil companies, non-payment of dues by government agencies and policy hurdles has hit all the infrastructure companies.

ICICI Bank and Axis Bank have shown that bad loans are no longer the stigma of public sector banks. ICICI Bank last week put Rs 44,000 crore of its loans from SDR and the 5/25 scheme on watch list; this is excluding its restructured loans. Five key sectors such as power, iron and steel, mining, cement and rigs were under intense scrutiny of the bank. Total exposure in these five sectors was at Rs 57894.2 crore.

Axis Bank has set up a watch list of companies having a total exposure of Rs 22,600 crore. The bank said, "We expect 60% of the watch list accounts to flow into NPA over the next eight quarters. While timing of slippage is difficult to predict precisely, we expect that there would be a slight bias towards second half of 2016-17. The watch list would be a closed list of accounts. No addition would be made to the list quarterly."

Chanda Kochhar, managing director and CEO, ICICI Bank, said in an analyst concall last week, "The watch list is a measure of prudence and it includes both the fund-based and non-fund based exposures. But the non-fund exposures do invite NPA classification."

Parag Jariwala from Religare Securities said in a note, "Asset quality disclosures stepped up in fourth quarter but fail to alleviate concerns. ICICI Bank has not given any slippage or credit cost guidance for its watch list, whereas Axis Bank said that that 60% of slippages are likely to materialise in the first two years and credit cost will remain in the range of 1.25 %-1.50%."

Some of the big SDR cases are Gammon India (with a debt of Rs 14,800 crore), Monnet Ispat and Energy (Rs 12,500 crore), IVRCL (with an exposure of Rs 1,19,400 crore) and Electrosteel (Rs 10,900 crore). In some of these cases, banks have already classified them as NPAs and provided for them.