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  3. Banks likely to take Rs 2.4 lakh crore haircut for top 50 NPAs: CRISIL

Banks likely to take Rs 2.4 lakh crore haircut for top 50 NPAs: CRISIL

20 Jul 2017 Evaluate

The rating agency, CRISIL in its latest report has said that Indian banks are likely to take a haircut of nearly 60 percent, worth Rs 2.4 lakh crore in order to resolve the top 50 Non-performing asset (NPAs) accounts with debt of Rs 4 lakh crore. According to the report, these 50 companies are from the metals (30% of total debt), construction firms (25%), and power (15%) sectors, and account for half of the Rs 8 lakh crore bad loans in the banking system as on March 31, 2017.

The rating agency has said that it would be in the larger interest of the economy to pop the bitter pill of haircut than kick the can down the road. It has estimated that banks have provisioned for about 40 percent of this loan exposure and added that they used the economic value approach to assess the haircuts. The credit rating agency has classified the haircuts into four categories - marginal, where the haircut required is less than 25% of the outstanding; moderate, where the haircut may range between 25% and 50%; aggressive, where the haircut could be between 50% and 75%; and deep, where a haircut of more than 75% may be required to arrive at a sustainable level of debt.

Further, the report noted that a quarter of the debt analysed needs marginal or moderate haircuts, while a third needs aggressive and nearly 40% deep haircuts. It also pointed out that the companies from the power sector would require moderate haircuts, whereas those from the metals and construction sectors would need aggressive ones.  It further stated that a majority of the debt requiring deep haircuts belongs to companies with unsustainable businesses, and asset sales are necessary to recover monies.

Recently, the government has promulgated an ordinance empowering the RBI to issue directions to banks for speedy resolution of stressed assets so that they become viable. The focus now is on optimum debt reduction including through potential transfer of assets to a different management that can bring in the resources needed to scale up cash flows.

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