Over the past decade, around 90% of India’s capex has come from five sectors which have become synonymous with a murkier shade of capitalism – Power & Infra, Metals & Mining, Telecom, Oil & Gas and Real Estate. As is increasingly well understood, promoters in these sectors used unconventional means to access term loans from PSU banks.
The PM has severed the access that crony capitalists had to the political establishment in New Delhi. As a result, it seems unlikely to
us that crony capitalists will embark on borrowing and spending exercises in FY17. That means it is hard to see the banking system growing out of its current woes. At best, we see system credit growth at around 12% over FY17, FY18 and FY19.
As suggested clearly by RBI Deputy Governor SS Mundra in his 11th February speech (click here:
https://goo.gl/ZJPmVS) and by Banks Board Bureau chief Vinod Rai in his 8th April comments to the press (
http://goo.gl/JQd6lC) the authorities now seem to have proof of malpractice in the disbursal of terms loans to corporates. Mr Mundra says that while for PSU banks as a whole 17% of their assets are
stressed (i.e. NPAs plus restructured plus written-off), 32% and 24% of loans to medium and large corporates respectively are stressed. Given how crony capitalists tend to behave, the PSU banks are unlikely to meaningful success in recovering these monies. We therefore believe that the shareholders’ equity depletion of PSU banks will run into FY17.
NOTE: Inputs from Ambit Capital Research.
