Tag: restructuring

Few takers for restructuring under RBI’s Resolution Framework 2.0: Crisil

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There are only a few takers for the debt restructuring facility offered by the Reserve Bank of India (RBI) under its Resolution Framework 2.0 amid demand recovery, according to a Crisil Ratings survey of about 4,700 companies rated by it.

Crisil Ratings’ investment grade rated corporates have shown resilience amid the pandemic and hardly anyone is planning to avail restructuring 2.0.

Sub-investment grade

In fact, the survey shows that as much as 95 per cent of those opting for, or are inclined to seek restructuring, belong to the sub-investment grade rating category.

Within the sub-investment grade companies, four out of five are rated in the ‘B’ or lower rating categories, clearly indicating that only companies with weak credit quality are exploring restructuring, the credit rating agency said.

Crisil cautioned that any weakening of sentiment around recovery, and a likely third wave leading to fresh curbs on economic activity, will influence more companies to seek restructuring 2.0.

“This could be especially true for the smaller ones that typically experience more stress. Greater clarity will emerge closer to the September 30, 2021, deadline set by the RBI for invoking the restructuring plan,” it said.

Crisil emphasised that these are preliminary readings from the survey, and may not be reflective of the inclination among those not rated by it.

In particular, most of the micro and small enterprises in India are unrated, it added.

Resolution Framework 2.0

The RBI had, on May 5, 2021, announced the Resolution Framework 2.0 for Covid related stressed assets of individuals, small businesses and micro, small and medium enterprises (MSMEs) with aggregate exposure of up to ₹25 crore.

This facility is available provided the aforementioned entities had not availed benefits under any of the earlier restructuring frameworks (including Resolution Framework 1.0 dated August 6, 2020), and were classified as standard accounts as on March 31, 2021.

Referring to the RBI raising the aggregate debt threshold under Resolution Framework 2.0 to ₹50 crore from ₹25 crore on June 4, 2021, the agency said, “This increase in threshold led to about two-thirds of the Crisil-rated mid-sized companies becoming eligible for the restructuring 2.0 scheme.”

Corporates give restructuring option a miss

Crisil opined that the fact that only a handful of companies are exploring the restructuring option could be reflective of a relatively improved business outlook accompanying a pick-up in economic activity in the aftermath of the pandemic’s second wave.

Subodh Rai, Chief Ratings Officer, Crisil Ratings, said, “The quick recovery in demand after moderation during the second Covid-19 wave, and sanguinity around economic growth have led corporates to give the restructuring option a miss.

“The more localised and less stringent nature of curbs/restrictions during the second wave has meant relatively lower disruption in business activities compared with the first wave. So the muted response is par for the course.”

Nitin Kansal, Director, Crisil Ratings, said, “Most of the companies that have opted for, or are contemplating restructuring 2.0 belong to the low-to-medium resilience sectors such as hospitality, educational services, textiles, construction and gems and jewellery.

“Demand recovery in some of these remains uncertain because of the continuing overhang of the pandemic.”

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Kotak Mahindra Bank Q1 net profit up 32%

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Kotak Mahindra Bank reported a 31.9 per cent jump in standalone net profit for the quarter ended June 30 at ₹1,641.92 crore compared to ₹1,244.45 crore in the same period last fiscal.

Total income grew 4.9 per cent to ₹8,062.81 crore (₹7,685.4 crore).

Net interest income increased 5.8 per cent to ₹3,942 crore (₹3,724 crore).

Net interest margin for the first quarter was at 4.6 per cent versus 4.4 per cent a year ago.

Other income more than doubled to ₹1,583.03 crore (₹773.54 crore). Of this, fee income surged 50.6 per cent to ₹1,169 crore on an annual basis.

Provisions declined marginally to ₹934.77 crore in the first quarter from ₹962.01 crore a year ago.

“Covid related provisions as of June 30 were maintained at ₹1,279 crore,” the bank said in a statement on Monday.

Total restructuring

In accordance with the Resolution Framework for Covid-19 and MSME announced by RBI, the bank implemented total restructuring of ₹552 crore as of June 30against ₹435 crore as on March 31, .

Covid related restructuring in the first round was about ₹226 crore while it was very less in the second round.

The lender faced headwinds in terms of asset quality deterioration amidst the second wave of the pandemic. Gross non-performing assets rose to ₹7,931.77 crore or 3.56 per cent of gross advances as on June 30, 2021 compared to 2.7 per cent a year ago.

Dipak Gupta, Joint Managing Director, Kotak Mahindra Bank, said there were challenges in terms of the ability of customers to pay as well as customers who could not be reached in time and moved into NPAs.

“Collections have normalised in June and July. We expect a reasonable number of customers, who couldn’t be reached for collections, to start payments,” he said.

Net NPAs were also elevated at 1.28 per cent of net advances as against 0.87 per cent as on June 30, 2020.

Capital adequacy ratio of the bank as per Basel III norms as of June 30, was 23.1 per cent and Tier-I ratio was 22.2 per cent.

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Banks begin process of restructuring of loans up to Rs 25 crore, BFSI News, ET BFSI

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To provide support to small businesses hit by the second coronavirus wave, banks have initiated the process of restructuring of loans up to Rs 25 crore in line with the COVID-19 relief measures announced by the Reserve Bank earlier this month. Many lending institutions have got board approval for the resolution framework and eligible borrowers are being contacted.

For example, Bank of India has sent messages to its eligible customers to submit their willingness to debt recast online.

“In these trying times, we offer you a helping hand by extending relief as per RBI Resolution Framework 2.0 dated May 5, 2021. If you are under financial stress caused by the COVID second wave, you may opt for restructuring of your account,” the message said.

Another public sector lender Punjab & Sind Bank said its debt recast plan as specified by the RBI has been approved by the board.

“We will be reaching out to our customers including through BCs…we will get a fair idea about how many customers want to avail the restructuring in the next few days or so,” Punjab & Sind Bank managing director S Krishnan said.

SBI Chairman Dinesh Kumar Khara said for the resolution framework 2.0 announced by the RBI on May 5, all public sector banks have come out with a formulated templated approach for restructuring of loans to individuals, small businesses, MSMEs up to Rs 25 crore.

“The idea behind this is that those who are involved in the implementation of the resolution framework, they should not have any hardship in terms of any implementation,” Khara added.

When asked about the size of the restructuring pool banks are expecting this time, IBA Chairman and Union Bank of India‘s Managing Director and Chief Executive Officer Rajkiran Rai G said it was too early to put a number for potential recasts, as banks are only sending messages to eligible borrowers.

“Last time also we saw that the number of customers opting for this (restructuring) was not that high. So, we need to get some feedback and it is difficult to crystallise a number at this point in time,” he said.

The SBI chairman, Khara, said during the previous restructuring scheme, SBI had about 8.5 lakh SME customers who were eligible for restructuring but only 60,000 borrowers availed it.

The resurgence of the fresh COVID-19 wave has put many MSME, individuals and small businesses under stress. Taking cognisance of the prevailing situation, the RBI announced Resolution Framework 2.0 under which individuals and small businesses having exposure up to Rs 25 crore can opt for loan restructuring if they had not availed the earlier scheme.

In the case of those who had availed the loan restructuring under the earlier scheme, the RBI permitted the banks and lending institutions to modify the plans and increase the period of the moratorium to help alleviate the potential stress.

“In respect of small businesses and MSMEs restructured earlier, lending institutions are also being permitted as a one-time measure, to review the working capital sanctioned limits, based on a reassessment of the working capital cycle, margins, etc,” RBI Governor Shaktikanta Das had said while announcing steps to deal with the impact of the second wave of the COVID-19.

This is a one-time loan restructuring scheme under which the loan would remain standard despite recast and banks would not have to make additional provision in such cases.

This is the second restructuring scheme announced by the central bank in less than one year, with the first unveiled in August last year when the first COVID-19 wave had battered the Indian economy with a contraction of 8 per cent during the financial year ended March 2021.

Borrowers who were classified as “standard” as of March 31, 2021, will be eligible to be considered under Resolution Framework 2.0.

Restructuring under the proposed framework may be invoked up to September 30, 2021, and would have to be implemented within 90 days after invocation. DP MKJ MKJ



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PSBs to follow templated approach to restructure loans

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Public Sector Banks (PSBs), under the aegis of the Indian Banks’ Association (IBA), have formulated a templated approach for seamless implementation of RBI’s Resolution Framework 2.0 for restructuring loans to individuals, small business and MSMEs up to ₹25 crore.

Banks have evolved a process flow for individual loans and a templated standardised approach for business and MSME loans up to ₹10 lakh.

Individual loans

The process flow envisaged for individual loans includes a) customer accessing the bank’s portal or manually submitting application for restructuring and b) processing of application and implementation in the system.

The resolution process has to be invoked within 30 days from the receipt of the application. The last date for invocation is September 30.

Invocation means that both the borrower and the bank agree to proceed with the Resolution Plan, which will include rescheduling of payments, granting of moratorium and extension of tenor. Decision in this regard will be communicated to the borrower in writing.

The Resolution Plan has to be implemented within 90 days from the date of invocation, but not later than December-end 2021.

The moratorium period granted will be for a maximum of two years, and it will start immediately after the implementation of the Resolution Plan.

Business, MSME loans

For implementation of resolution framework for business loans, banks have categorised loans into three categories – up to ₹10 lakh, ₹10 lakh and up to ₹10 crore, and above ₹10 crore

Under the templated standardised approach for restructuring Business and MSME loans up to ₹10 lakh, banks have sent bulk SMS to eligible customers including the already restructured accounts.

Offer-cum-acceptance letters, along with application, has been generated centrally. Customers have to provide consent in the offer letter itself. The application will then be processed.

Resolution invocation has to happen within 30 days of receipt of acceptance. Post-invocation, resolution plan has to be implemented within 90 days.

For loans above ₹10 lakh and up to ₹10 crore, and above ₹10 crore, banks will take a graded approach for restructuring. It will also include standard application and assessment formats, standard and simplified documentation, and common outreach approach

Sunil Mehta, Chief Executive, IBA, said a grievance redressal mechanism, comprising nodal officers, has been put in place to address customer complaints.

The Reserve Bank of India (RBI) announced a ‘Resolution Framework 2.0 for Covid-Related Stressed Assets of Individuals, Small Businesses and MSMEs’ on May 5.

Under the framework, borrowers – individuals, small businesses and MSMEs – having aggregate exposure of up to ₹25 crore and have not availed restructuring under any of the earlier restructuring frameworks and were classified as ‘standard’ as on March 31are eligible to be considered under Resolution Framework 2.0.

Restructuring under the framework can be invoked up to September 30, and has to be implemented within 90 days after invocation.

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Covid-hit loan restructuring may be onerous for banks, borrowers, BFSI News, ET BFSI

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The government has allowed a restructuring scheme for small borrowers, but it comes with costs for both borrowers and lenders.

The lenders will have to set aside a provision of 10 per cent of the residual debt of the borrower, while the borrowers will be tagged as restructured loans by credit bureaus, which will crimp their ability to avail further loans. The provisioning will impact the capital position of banks, while the borrowers get tagged as restructured loans for something which may not be their fault.

Decisions to make

In the second Covid wave, lenders have to decide which borrowers are eligible for the recast and choose among those who were classified as standard accounts at the end of FY21.

Last year, during the first Covid wave, RBI has allowed a moratorium on loans which is not available this time.

Banks stare at a huge number of decisions to make with banks’ exposure to MSMEs at Rs 5.19 lakh crore, exposure to non-banking financial companies at Rs 9.45 lakh crore, many of which on-lend to MSMEs. Microfinance institutions, which depend on bank funding, have given out Rs 2.30 lakh crore. Banks are also not sure till when the second wave and in turn the stress in the economy will persist.

Also, rural India, which escaped largely unscathed last time, is likely to face stress this time.

Restructuring 2.0

Earlier this month, Reserve Bank announced a slew of measures including loan restructuring for individual and small businesses hit hard by the fresh Covid wave.

Borrowers that are individuals and micro, small and medium enterprises (MSMEs) having aggregate exposure of up to Rs 25 crore would be considered for the new scheme.

This would be for those who have not availed restructuring under any of the earlier frameworks, including the Resolution Framework 1.0 of RBI dated August 6, 2020, and who are classified as standard as on March 31, 2021, shall be eligible for the Resolution Framework 2.0, he said.

Under the proposed framework, the restructuring of loans may be invoked up to September 30, and shall have to be implemented within 90 days after the invocation, he added.



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Loan restructuring: FIDC seeks clarity from RBI on relief measures

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The Finance Industry Development Council (FIDC) has written to Reserve Bank of India Governor Shaktikanta Das seeking more clarity and highlighting residual issues in the NBFC sector after the announcement of relief measures for loan restructuring on May 5.

“To clarify or permit restructuring of such MSME accounts, which had been restructured under Restructuring Framework 1.0 and increasing the period of moratorium and/or extending the residual tenor up to a total of two years for MSMEs, along the same lines as the support provided to individuals and small businesses,” said the representation by FIDC, which is the representative body of assets and loan financing companies.

It has also sought inclusion of hybrid use of tractors under the definition of small businesses, thereby allowing restructuring of such mixed-use tractor (equipment) loans.

Moratorium

FIDC has asked for allowing moratorium up to an additional three years, taking both Resolution Framework 1.0 and 2.0 together, for long tenure loans (loans with a residual tenure of at least five years), over and above the period of two years.

“For loans with residual tenure of up to five years: increase the overall moratorium period by additional one year, that is overall cap of three years,” said FIDC, adding that for loans with residual tenure between five years and 10 years, the overall moratorium period should be increased by an additional two years to an overall cap of four years.

Similarly, for loans with residual tenure of over 10 years, the overall moratorium period should be increased by an additional three years to an overall cap of five years.

“It is our earnest request that on the lines of MSMEs, the individuals and small businesses, who are impacted by Covid-19, should also be allowed upgrade even if they slipped into NPA category between April 1, and the date of implementation,” said FIDC, requesting that the RBI should issue an amendment or clarification on the matter.

Given the State-level lockdowns and restrictions in movement, FIDC has also suggested permitting digital delivery of documentation. “Customers be allowed to request and invoke restructuring through video, email, SMS or WhatsApp and restructuring documentation may be allowed to be signed digitally either via e-Sign or through click-wrap method,” it has said in the recommendation.

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Breather for borrowers and small businesses as RBI allows Restructuring 2.0, BFSI News, ET BFSI

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The Reserve Bank of India has brought back the restructuring scheme for retail and small business borrowers allowing the lenders and borrower to brace the impact of the ongoing severe second wave of Covid-19 across the country.

RBI Governor, Shaktikanta Das said, “Small businesses and financial entities at the grassroot level are bearing the biggest brunt of the second wave of infections.”

He added, “The resurgence of COVID-19 pandemic in India in recent weeks and the associated containment measures adopted at local/regional levels have created new uncertainties and impacted the nascent economic revival that was taking shape. In this environment the most vulnerable category of borrowers are individual borrowers, small businesses and MSMEs.”

Under the Resolution Framework 2.0 for COVID Related Stressed Assets of Individuals, Small Businesses and MSMEs, borrowers who have aggregate exposure upto Rs 25 crore and have not availed restructuring in previous framework and who are classified as standard as of March 31, 2021 will be eligible for restructuring. The proposal has to be invoked up to September 30, 2021 and shall be implemented within 90 days after invocation.

Borrowers who have availed restructuring in the earlier framework where the resolution plan is permitted for less than two years are being permitted to use this window to modify their plans to extend the period of moratorium or tenor of the loan up to a total of 2 years.

For small businesses and MSMEs restructured earlier the central bank has allowed lending institutions as a one-time measure to review the working capital sanctioned limits based on a reassessment of working capital cycle, margins and other parameters.

Aashit Shah, Partner at J Sagar Associates said, “Restructuring guidelines for MSMEs, small businesses and individuals will assist them tide over the uncertainties caused due to the second wave. These guidelines as well as the recently introduced pre-arranged insolvency resolution process will enable MSMEs to restructure their debts without the looming fear of losing or liquidating their businesses.”

“Opening a one-time restructuring window for individuals and MSME till September 2021 will give an impetus to scale up their business without worrying about financial destitution,” said Rajesh Sharma, MD at Capri Global Capital Ltd.



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FIDC seeks relief measures in wake of second Covid wave

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Concerned about the impact of the second wave of Covid-19 infections, Finance Industry Development Council has sought relief measures including restructuring for retail and individual borrowers of non banking financial companies (NBFCs).

In a representation to Reserve Bank of India Governor Shaktikanta Das, FIDC has asked that borrower accounts, irrespective of whether or not they had been restructured earlier and if they are standard accounts as on March 31, 2021, may be allowed restructuring without any downgrade in asset classification, subject however to the lending NBFCs undertaking fresh credit assessment of the borrowing entity.

“We wish to bring to your kind notice that the second wave of Covid- 19 has already started impacting the industry, more so the above self- employed segment of customers having little or nothing to fall back upon,” FIDC said in the letter.

NBFCs under pressure

It also pointed out that with many states like Maharashtra, Chhattisgarh, Madhya Pradesh, Karnataka, Rajasthan, Tamil Nadu and NCR already under lockdown or lockdown-like strict conditions, which has resulted in closure of NBFC branches. It is becoming increasingly difficult to reach customers for collections as their business has come to standstill and their livelihoods are under threat, it further said.

“It will not be long before the NBFC industry starts reeling under pressure of increased NPAs and at the same time, handling demand of moratorium and/or restructuring from its existing and deserving customers,” FIDC said.

Loan restructuring

It has also asked the RBI to allow standstill on buckets for restructured accounts for the first quarter of the current fiscal.

FIDC has also sought restructuring of loans taken by small NBFCs (having asset size of less than ₹500 crore) from banks and FIs and to avoid ALM mismatch arising out of restructuring of their customers’ accounts.

It has also asked the RBI for liquidity support to small NBFCs for on lending to micro, small and medium enterprises.

“We urge the RBI to increase the overall support outlay to AIFIs from ₹50,000 crore to at least ₹75,000 crore,” FIDC said, adding that benefit of PSL classification for lending by banks to

NBFCs for on-lending may please be regularised as part of the overall PSL policy.

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‘In Q4, we are looking at growing the business, but methodically’

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The micro-finance sector is showing signs of improvement barring some lagging areas and customer sets. However, there is demand for credit, said Nitin Chugh, Managing Director and CEO, Ujjivan Small Finance Bank. In an interview with BusinessLine, he also spoke on the new products the bank is working on and discussed the third quarter results. Excerpts:

How is the micro-finance sector doing now?

In general things have improved, which is coming up in the collection efficiency of 94 per cent to 95 per cent. We had reported in our second quarter results that we have problems in Maharashtra, Punjab, and West Bengal, and haven’t come back to the pre-Covid level. In Assam, while things were improving, we have had a setback in January due to the loan waiver announcement by political parties, and (that) has resulted in 9 per cent drop in collection efficiency (during the month).

Even in customer segments, there is some divergence. Customers with general stores, and dairy were able to come back rather quickly. Those in small-scale manufacturing are taking longer to come back. Customers like housemaids, drivers, restaurant staff and mall workers were impacted for a much longer time.

Also read: Ujjivan SFB reports net loss of ₹279 cr in Q3

How has the restructuring process been?

You can’t expect or even plan for such things. The moratorium got over on August 31, 2020. September was the first month when customers started making payments. We had a collection efficiency of 83 per cent for payments, which improved to 88 per cent in October. But there are customers who are finding it difficult to pay after the moratorium got over. The whole estimation process started from October; we started talking to customers and did a full detailed survey. We spent December holding individual conversations and completing the whole process.

How is credit demand? You have reported strong disbursement in the third quarter.

Credit demand has started to come back as people started going back to their livelihoods.

Disbursement is even stronger in January. Demand is from all across. We did our highest ever in January in the affordable housing business. In MSME also, we did our ever highest in January. In micro-banking, we are back to pre-Covid level and exactly what we were in January 2020. In fact, in December 2020, we did even better than December 2019 in micro-finance. Likewise in vehicle finance. In the fourth quarter, we are looking at growing the business now but doing it methodically with the appetite for risk that we have.

You are working on gold loans…?

We are still learning the business. We are in pilot stage right now. We started in October with five branches, all of them in Bangalore. The first two months were not very remarkable as we were trying to do this more through word of mouth. We will launch it at scale in the next fiscal year. It is an unmet demand of our customers.

Also read: Assam MFI Bill may hit collections in short term

Any other new areas of lending?

In vehicle finance, we are testing MMCV (micro and mini commercial vehicle) loans. We are likely to make an entry into that segment. We were also evaluating the used car segments but with the Budget announcements on voluntary scrapping policy, we need to do some rethink on that. The segment of customers we deal with, they usually buy five- to seven-year-old vehicles and they buy them for a long period of time.

We are also looking to introduce credit cards in the next financial year. We have a substantially large base of retail, non-micro-finance customers. We have a large base with close to a million customers and the demand for these products is coming from them. We will also look at any other relevant product. Also, maybe lockers in a few of our branches.

Are you worried about stress on your books?

Now, we are not. We have taken all provisions upfront in the third quarter. Stress is emerging right now, the NPAs are at a standstill. We already had a cover on our books of 4.1 per cent to 4.2 per cent in the last quarter. It wasn’t that we were not adequately covered, we had taken provisions in the last three quarters also. We took the decision to upfront everything. Let us not live with any uncertainty and not worry about future credit loss, so that we can focus on growth.

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BoB signs MoU with SIDBI to enable MSMEs apply online for one-time restructuring

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Bank of Baroda (BoB) has signed a memorandum of understanding (MOU) with the Small Industries Development Bank of India (SIDBI) to enable MSMEs (micro, small and medium enterprises) apply online for one-time restructuring (OTR).

The public sector bank’s MSME customers can now access the web-based portal, ‘Asset Restructuring Module for MSMEs (ARM-MSME)’. To support viable MSME entities (with credit exposure up to ₹25 crore), which are under financial stress due to the fallout of the Covid-19 pandemic, the central bank has allowed banks to consider OTR proposals from MSMEs, whereby the restructuring of the borrower account has to be implemented by March 31, 2021.

ARM-MSME is an automated / Do-It-Yourself (DIY) web-portal for MSMEs to self-create their restructuring proposal with financial viability projections by iteration of multiple scenarios and relief options, the bank said in a statement.

Existing MSME borrowers of the bank can avail the online facility of submitting the application for restructuring of loan accounts from the comfort of their home/office free of cost, it added.

BoB said borrowers can also modify the online application or re-submit a new online application, as per their convenience. This will help MSMEs prepare their restructuring proposals by keying in only the most essential data of their past and projected financials, the bank said.

Ram Jass Yadav, Chief General Manager – MSME & Retail Business, BoB, said: “Through this partnership, we will hopefully assist numerous MSMEs who are in need of guidance and currently seeking advisory for the one-time restructuring application from external sources as of today.”

 

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