MUMBAI: The worst fears of RBI Governor Raghuram Rajan on the restructuring of bad loans look to becoming true. Banks had sought to recast dodgy loans over the past few years — taking haircuts and extending repayment periods — in order to make their books look better. They have only managed to kick the can down the road.Defaults by borrowers given such a helping hand are soaring. The failure of these loans jumped 90 per cent in the fourth quarter of the last fiscal year amid a sluggish economic environment and what look like poor business practices.Restructured loans worth Rs 56,995 crore were classified as having failed at the end of the March quarter, almost twice the Rs 29,980 crore in the year-ago period, according to data from RBI’s corporate debt restructuring cell."We had expected 30-35 per cent of the loans restructured to go bad, but the prolonged slowdown has taken a toll on companies," said a banker involved with the restructuring programme. "The packages were drafted on certain assumptions which have not paid off. Many of these cases should not have been restructured at all as we were sure of no turnaround, but to protect the bank balance sheets some excesses were done."When faced with mounting bad loans during 2011-14, Indian banks resorted to restructuring, which helped them avoid having to report these as non-performing assets (NPAs). That reduced the funds they had to set aside for potential defaults.Although meant only for viable businesses, the programme was extended indiscriminately, drawing criticism from Rajan in November."This is shortsighted, especially on the part of the banks," the RBI governor had said. "Regulatory forbearance, which is an euphemism for regulators collaborating with banks to hide problems and push them into the future, is a bad idea. Moreover, forbearance allows banks to postpone provisioning for bad loans. So when eventually the hidden bad loans cannot be disguised any more, the hit to the banks’ income and balance sheet is larger and more unexpected."Loans of companies such Bharati Shipyard, ABG Shipyard, GTL, Essar Steel, Winsome Diamond, REI Agro, Surya Vinayak Industries, Forever Precious Jewellery & Diamonds, Sterling Oil Resources, Varun Industries, Electrotherm India Ltd, KS Oil, Deccan Chronicle and Kingfisher Airlines amounting to over Rs 30,000 crore have gone bad.Banks had restructured debt amounting to Rs 2.86 lakh crore at the end of March 2015, up 18.22 per cent from Rs 2.42 lakh crore a year ago.As much as 40 per cent of loans restructured between 2011 and 2014 have turned bad, forcing banks to provide for such loans, said Crisil, the local unit of rating company Standard & Poor’s. It forecasts that banks’ gross bad loans may rise another 20 basis points to 4.5 per cent of total loans — or byRs 60,000 crore to Rs 4 lakh crore. A basis point is 0.01 percentage point.Lenders such as ICICI Bank Punjab National Bank and Dena Bank saw a spike in non-performing loans and slippages from restructured loans in the fourth quarter ended March. ICICI Bank’s gross NPA ratio for the quarter ended March widened to 3.78 per cent from 3.03 per cent a year earlier. At Dena Bank, this expanded to 5.45 per cent from 3.33 per cent while for Punjab National Bank it rose to 6.55 per cent from 5.25 per cent.Rajan isn’t convinced that the worst is over on the bad loans front.