Surge in bad loans a dark reminder of lax credit standards, inadequate monitoring

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The bad loans of Indian banks has touched a record high of Rs 9.5 trillion at the end of June 2017. The banks witnessed an increase of 4.5% in bad loans from January to June 2017, according to RBI data. The recent surge in bad loans suggests that there is no end to the NPA crisis anytime soon.

Heckyl believes there is a lot more that can be done in the credit risk space in the financial institutions. It is no secret anymore that be it the banks or the non-banking financial companies (NBFCs), the wrath of the non-performing assets has spared none. Although, these financial institutions have their existing risk models in place, the important question remains, that is, are they able to comprehensively highlight the impending risk ahead of time?

Heckyl has developed innovative Credit Risk Early Warning System (EWS) that collects, organizes and performs deep-dive analytics on structured and unstructured data sets to offer 360-degree view on lender’s loan portfolio. Our EWS application identifies the pre-default behavior of corporate borrowers to help lenders pick up warning signals ahead of time.

Heckyl EWS spots several red-flags on Sintex IndustriesSintex Redflags

To highlight use case of Heckyl EWS, we have prepared case study on Sintex Industries. Our EWS application identified several red-flags on Sintex Industries for the past 3-years.

Here are some of the red-flags identified by our EWS application:

Oct’14-Dec’14:

Amit Patel of Sintex shifts focus from tanks to textile
Ratio of other income over gross sales compared to previous quarter is > 1.1

Jan’15-Mar’15:
Promoters reduced shareholding by 2-5 percentage points Q-o-Q
FY15 inventory turnover increased more than 10%
Payable days decreased by more than 10% compared to previous year

Apr’15-Jun’15:
Net profit declined more than 10% Q-o-Q for Q1 FY16

Jul’15-Sep’15:
Sintex’s changing terms on debt papers questioned

Oct’15-Dec’15:
Sintex scales down growth estimates to 15% for FY16
Baring India cuts its stake in Sintex Ind
IL&FS Trust charge on assets for Rs 5 bn charge

Jan’16-Mar’16:
Q4 and FY16 net profit dropped more than 10%
Cash from operations fell more than 10% for FY16
Ratio of EBITDA over cash from operations is less than 0.7
Inventory turnover increased more than 10% compared to previous year
Total debt per equity increased more than 10% compared to previous year

Apr’16-Jun’16:
Net profit declined more than 10% Y-o-Y for Q1 FY17

Jul’16-Sep’16:
IL&FS Trust creates charge on Sintex assets for Rs 200 cr

Oct’16-Dec’16:
SMERA placed Sintex on credit watch on company’s demerger plan
Sintex Q3 consolidated net down 39.23%; Misses estimates

Jan’17-Mar’17:
PF payment delayed by 5-15 days in Mar’17
Promoter pledged shares crosses 50%-mark
Working capital cycle is greater than 180 days
Interest cover fell more than 10% in FY17 compared to previous year
Ratio of EBITDA over cash from operations is less than 0.7

Apr’17-Jun’17:
Merrill Lynch Markets sell 30.17 lakh shares of Sintex
Net profit declined more than 10% Q-o-Q for Q1 FY18
Ratio of cost of goods sold (COGS) growth over revenue growth is greater than 1.1

Jul’17-Sep’17:
CARE downgrades Sintex Industries’ credit ratings
Blackrock Funds sells 53.56 lakh shares of Sintex Industries

Heckyl EWS not only helps banks to remain vigilant on a particular borrower, but also helps to decide whether to sanction/ increase or decrease the credit limit to a certain borrower. Early Warning System is the need of the hour for bankers to build, manage and sustain a healthy and profitable commercial loan portfolio.

To know more about Heckyl EWS, email us at info@heckyl.com

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