Borrowings by potentially stressed companies jumped by 85 per cent since financial year 2012 despite apparent stress on cash flow and increasing leverage at the group levels, Swiss banking group UBS has said.
“Total loans approved by banks to our sample list of companies have recorded a 23 per cent compounded annual growth since FY12,” it said. UBS said 15-20 per cent of companies it analysed are already categorised as non-performing asset or have been restructured, and therefore, are already part of the banks’ impaired assets. “Total loan approvals by banks have increased by 85 per cent since FY12 for the banks under our coverage (including non-fund based exposures),” UBS said in a study on the banking sector.
While strong growth could be partly driven by disbursements to already approved loans for projects, banks also seem to be supporting some accounts, leading to a stretched working capital cycle. “Loan approvals to our sample set of companies increased 3 times for YES Bank and 2 times for ICICI during FY12-15,” it said.
UBS said it conducted a “proprietary survey of over 7,000 collateral documents (used to secure loans) filed at the Registrar of Companies pertaining to a sample of around 100 potentially stressed companies (covering approximately $ 100 billion, Rs 640,000 crore in loans) to understand the exposure and lending practices of banks”. UBS said it analysed loan approvals to six large and leveraged corporate groups — Jaypee, Essar, GMR, GVK, Lanco and Abhijeet — and all have reported a significant increase in debt as well as a deterioration in cash flow and the ability to service debt in FY12-15.
Estimated loans approved to UBS sample set of companies as a percentage of FY15 loans was the highest for YES Bank at 19 per cent, followed by ICICI (14 per cent) and Punjab National Bank (10 per cent).