More and more companies are applying for second round of corporate debt restructuring (CDR) because of their inability to service loans, a report by brokerage firm Prabhudas Lilladhar shows.
The report shows that not only is the number of debt-restructuring proposals reaching CDR cell on the rise, the quality of cases is deteriorating with 40-50 per cent of them are being referred to second restructuring.
The report said the proportion of second restructuring cases has increased from 10-20 per cent to over 40-50 per cent. According to Reserve Bank of India (RBI) norms, in second restructuring, assets are to be treated as non-performing assets (NPA).
The total debt under CDR touched Rs 187,400 crore at end-September and this is about four per cent of the total bank credit.
The higher second restructuring is negative for the banking industry as slippages from these cases will be substantially higher than the first and might also invite RBIÂ’s attention, the brokerage firm said.
In the second quarter review of monetary policy, the RBI increased the provisioning requirements from two per cent to 2.75 per cent for the restructured assets. This is expected to hit profitability of the banks from this quarter. The CDR cell continues to expect the restructuring cases in between Rs 20,000 -25,000 crore per quarter.
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