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K. Ram Kumar

Mumbai, Nov. 21 State Bank of India, India’s biggest commercial bank, has hit the road, literally, to recover stressed retail loans not exceeding Rs 5 lakh.

SBI is banking on “Bank Adalats” to recover retail loans – personal, auto, and education – that have become non-performing as on March 31, 2007.

SBI is offering a win-win proposition to small borrowers, whereby they can settle their dues by sitting across the table instead of allowing litigations to drag on for years. The bank is hoping to make handsome recoveries by dangling the one-time settlement carrot.

The bank’s effort to recover stressed small loans comes in the wake of an accretion of Rs 1,144 crore in gross non-performing loans, Q2FY09 over Q1FY09. As on September 30, 2008, SBI had gross NPLs aggregating Rs 12,552 crore as against Rs 11,194 crore as on September 30, 2007.

Under the one-time settlement of small loans, a borrower is required to repay the principal loan amount. However, when it comes to interest payment, the bank, depending on the customer’s repayment capacity, relents by giving a concession.

SBI achieved modest success at a recent adalat held in Mumbai. While the bank sent out communication to around 500 retail borrowers, who had availed themselves of loans aggregating about Rs 4.5 crore, inviting them to the forum, it managed to amicably settle the cases pertaining to 80 borrowers and recovered Rs 75 lakh.

“The advantage of the adalat is that senior bank officials, having requisite powers to decide on the amount of waiver, are present. This helps, as settlement decisions are not only taken on the spot but letters of confirmation, detailing the settlement terms, are also exchanged. We are planning to organise more such forums at regular intervals,” said a senior SBI official.

The official emphasised that persistent recovery of stressed small loans will contribute to a healthy bottom line.

Litigation, according to the official, is a drag on the resources of the bank.

The USP of the settlement forum is that on the spot decisions are taken. If a borrower is not satisfied with the forum’s decision, he/she can always fall back on the court for denouement.

Personal, auto and education loans collectively account for 49 per cent (Rs 49,115 crore) of SBI’s retail loan portfolio of Rs 99,699 crore as on September 30, 2009.

Retail loans account for 20 per cent of the bank’s total advances of Rs 4,99,347 crore.

More Stories on : Non-Performing Assets | Public Sector Banks | State Bank of India

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