The Hindu Business Line : Banks deluged with proposals for restructuring loans

Mumbai, March 24 Banks are flooded with lakhs of proposals from corporates, SMEs and home loan borrowers for restructuring their loans, running into thousands of crores of rupees.

This follows the Reserve Bank of India’s recent guidelines allowing banks to treat loans which are under stress as ‘standard’ if they are considered for restructuring before March 31 this year.

The restructuring will help banks from making higher provisioning.

Mr M.V. Nair, Chairman & Managing Director, Union Bank of India, said his bank has taken up for restructuring around one lakh loan accounts.

“Majority of the loan accounts that have come up for restructuring is from the SME category. We are reaching out to every customer,” Mr Nair said.

Although he declined to reveal the amount of loans that would be restructured, Mr Nair indicated that it would be approximately 3 per cent of the bank’s balance sheet.

Based on the bank’s balance sheet, as on December 31, 2008, the loans due for restructuring work out to about Rs 6,600 crore.

In the case of restructuring home loans, the bank is extending the repayment tenure. This will reduce the monthly outgo (EMI), which would help those customers who have seen a cut in their salaries, said a senior official of the bank.

In the case of Bank of India, the number of loans that have come up for restructuring could be easily more than 25,000 and the amount could be around Rs 3,000 crore, said a senior official of the bank. The bank has not seen too many requests for restructuring of home loans, despite the bank informing customers about this, the official said.

Most of the proposals that have come up for restructuring are from small borrowers and SMEs.

Bank of Baroda has restructured about 3,000 SME accounts under the package since January, which amounts to around Rs 800 crore, according to an official from the bank.

State Bank of India has restructured about 26,000 SME accounts between December 15 and February 15. The figure may touch about 40,000 by end-March, said an official from the SBI’s SME department, at a recent meeting.

The RBI had recently issued guidelines which said that all accounts which were standard accounts as on September 1, 2008 would be treated as standard accounts on restructuring provided the restructuring is taken up on or before March 31, 2009 and the restructuring package is put in place within a period of 120 days from the date of taking up the package.

The RBI also extended the period for implementing the restructuring package from 90 days to 120 days.

However, the Institute of Chartered Accountants of India had recently opposed the RBI’s move, saying that it could distort bank balance sheets this fiscal.

It will not give a clear picture of NPAs (non-performing assets). The recent RBI circulars on ‘prudential guidelines on restructuring of advances by banks’ could have the effect of disguising bad loans as “standard assets” for at least a period of 210 days, ICAI officials noted.

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