The CRR cut is unlikely to result in a cut in interest rates this time as bankers appeared to be unpleasantly surprised at the Reserve Bank of India's move to increase provisioning for the restructured loans.
All bankers present at a post policy press conference expressed their shock at the increased provisioning.
In the case of the State Bank of India, while the CRR cut is freeing up Rs 225 crore, the increased provisioning will force the bank to keep aside Rs 300 crore, virtually nullifying the impact of the CRR cut. It is not different for other banks too. Punjab National Bank said it will take a 3 percent hit on its profit due to the new provisioning norm.
The RBI today increased banks' provisioning for restructured assets to 2.75 percent from 2 percent. Reacting to the news, banks shares nosedived. State Bank of India fell 4 percent to Rs 2,086.30, ICICI Bank tanked 2.3 percent to Rs 1,044, PNB fell 4 percent to Rs 728 and HDFC Bank is down by more than 1 percent to Rs 634. The BSE Bankex was down 2.3 percent.
According to the central bank data, the corporate debt restructuring or CDR cases jumped to a high of 392 as on March 2012 from 225 in March 2009, taking the amount at stake to Rs 2,06,493 crore from Rs 95,815 crore. The current fiscal has seen further spurt in CDR cases with the first quarter alone seeing nearly 30 cases totalling worth over Rs 40,000 crore. CDR is a mechanism wherein multiple lenders to the same entity meet up to decide on the fate of accounts collectively and restructure loans.
ICICI Bank's Chanda Kochchar ruled out any interest rate cut in the immediate future, while SBI Chairman Pratip Choudhury said the bank's asset liability committee will take a decision in two days. The RBI will meet bankers over a month and compromise formula will be arrived at, Chaoudhury said.
Companies are queuing up before banks to restructure their debt, as the economic downturn is making it difficult for them to service their loans. Banks have restructured loans worth about Rs 1.68 lakh crore as on 30 June under the corporate debt restructuring (CDR) mechanism, said a report in Mint recently.
Incremental restructuring during the three months to June was about Rs 17,957 crore, according to the report. It has to be noted that banks restructure loans outside CDR too. The figure will be much higher if these are also included. Rating agency Crisil has estimated that banks' loan restructuring during 2012-13 will rise to Rs 3.25 lakh crore, which will form 5.7 percent of their total advances.