Money & Banking
Refinancing of loans worth Rs2 lakh crore will be challenging for banks

About 50% of the refinancing amount, equivalent to 13% of the banking system net worth as on FY13, may present a significant underwriting challenge to bankers under the prevailing macroeconomic situation, says Ind-Ra

Bank loans worth an estimated Rs1.9 lakh crore to Rs2.1 lakh crore belonging to top 100 corporates, including non-financial and non-public sector, are due for refinancing in the next 12-15 months. About 50% of this refinancing amount, equivalent to 13% of the banking system net worth as of FY13, may present a significant underwriting challenge to bankers under the prevailing macroeconomic situation, says India Ratings and Research (Ind-Ra).


According to the ratings agency, around 24% of the refinancing requirement (about 4%-5% of the banking system net worth) is attributed to the 20 companies already in distress. While another 26% of the refinancing requirement attributed to 20 corporates, belongs to a category which Ind-Ra has termed as elevated refinancing risk (ERR).

Companies at ERR have weak credit metrics. Generally, as a group, their asset coverage ratios are low and financial flexibility of the promoter is also limited. Under normal market conditions, they should be able to refinance at a high cost or with stringent covenants. However, this group may face significant challenges in debt refinancing during stressed market conditions, Ind-Ra said.


The ratings agency feels around 34 corporates have refinancing risks which is manageable. "Of these, 12 accounting for 27% of the refinancing requirement will be able to refinance debt at a reasonable cost even under stressed market conditions. This category can be termed as high ease of refinancing (HER)," it said.


Ind-Ra said, "The other 22 corporates accounting for 23% of the refinancing amount, which can referred to as moderate ease of refinancing (MER), will also be able to refinance debt but with moderate ease. However, they may have to bear a high cost, especially under stressed market conditions."


According to the ratings agency, nearly 26 of the 100 top corporates considered have no significant refinancing exposure or are at negligible refinancing risk (NRR) till FY15. They have moderate levels of debt maturing or are likely to have sufficient free cash flows to service the maturing debt.


"While driven possibly by credit rationing (at the bankers’ end), banks’ exposure to the MER and ERR group has grown at a much more muted level. The potentially low eagerness on the part of bankers may prove to be a challenge in debt refinancing to such categories. While the cautious approach adopted by bankers has an intuitive explanation, the banking system may face the dilemma that if refinancing decisions are not taken promptly (when required), some of the large-value loans belonging to the ERR category may become distressed," Ind-Ra said.


"In addition," it said, "some corporates, particularly those with a low asset cover, may face underwriting challenges. Furthermore, given the low interest coverage of the corporates in the ERR category, a higher interest rate (possibly reflective of their risk) may affect their debt servicing ability further. As such, among these top 100 corporates, those in the NRR, HER and MER categories have shown a reduced dependency on the Indian banking system, while the dependency of those in the ERR and stressed categories has broadly remained unchanged."


Here is the list of top 100 corporate borrowers…




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Worried over security, EC drops plan to tie up with Google

Election Commission decided to drops tie-up plan with Google amid concerns raised by Congress, BJP and cyber experts over sharing of vital data of Indians to a foreign company

The Election Commission of India (EC) has decided not to pursue its proposed tie-up with internet search giant Google after concerns over national security were raised from several quarters, including major parties.


Earlier this week, the US-based Google made a formal presentation to the Election Commission proposing a tie-up with it for voter facilitation services ahead of Lok Sabha elections.


The Commission, at its meeting on Thursday deliberated on the issue and decided not to go ahead. The meeting was attended by Chief Election Commissioner VS Sampath and Election Commissioners HS Brahma and SNA Zaidi.


“After due consideration, the Commission has decided not to pursue it any further,” said an EC official.


The EC said Google had proposed to provide electoral look up services for citizens to help in the Commission’s efforts for better electoral information services.


The Commission had earlier signed a non-disclosure agreement with Google but had not shared or handed over any data to the internet giant so far and was deliberating on the tie-up with it for using its search engines for voter facilitation.


Congress and Bharatiya Janata Party (BJP) besides some cyberspace experts had voiced concerns over the proposed tie-up, saying stakeholders should have been consulted before a decision.


The Congress legal cell has written to the Chief Election Commissioner raising security concerns over the proposed tie-up and hoped it will not have any effect on the electoral process and national security.


BJP also expressed concerns and said the issue could have been discussed first at an all-party meeting by the EC.


Questioning the EC’s move, a group of cyber security experts had written to the Commission amid concerns over sharing of vital data pertaining to Indians to a foreign company.


The concerns also come at a time when eyebrows have been raised over leaking of vital data of Indians to US intelligence agencies as exposed by Edward Snowden.


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