More than Rs 7 lakh crore would be needed as equity infusion to correct the debt-high balance sheets of at least half of India’s 500 top corporate borrowers, posing a stiff challenge to the regulators, who have been debating on the methods to improve the financial position of Indian lenders.
According to a study by India Ratings and Research, such an equity investment would take three years to complete, while it would take more than double that time for stressed companies, which have been classified non-performing by banks. “At least 63 corporates in this stressed group may require minimum equity requirement of Rs2.4 lakh crore to barely survive or improve the likelihood of them continuing,” said Deep Mukherjee, senior director, India Ratings.
The study said that raising even a portion of the equity to correct the debt imbalance would be challenging as most of the 96 known stressed companies are close to being insolvent.
RBI governor Raghuram Rajan pitched the issue against defaulting promoters in a recent speech. “What I am warning against is the uneven sharing of risk... where promoters have a class of “super” equity, which retains all the upside in good times and very little of the downside in bad times, while public sector banks hold “junior” debt and get none of the fat returns in good times while absorbing much of the losses in bad times.”
The RBI has also pointed out that the Debts Recovery Tribunals, set up to help banks and financial institutions recover their dues, have under-performed. The amount recovered from cases in 2013-14 under DRTs was Rs 30,590 crore, while the outstanding debt to be recovered was Rs 236,600 crore.