For banks, recovering bad loans is top priority

SBI’s top brass has clear instructions for loan-recovery staff — go after the borrowers and keep up the pressure till the loan amounts are recovered.

State Bank of India, which saw its bad loans increase by Rs 9,702 crore in the April-June quarter to Rs 60,981 crore, is devising more aggressive loan recovery strategies, including asking the field force to file winding-up petitions against the defaulting companies.

It has started taking physical possession of the assets of the defaulting companies to realise maximum amount from their auction. This is a big stride for a bank, which till now took symbolic possession of the defaulter’s property by pasting a notice on it. Often, defaulting borrowers would take advantage of the situation and sell these assets (plant and machinery and other pledged assets).

The rising level of NPAs, however, is not a headache just for the country’s no. 1 bank. Other lenders too, are facing pressure on this front as the economy tries to ride out a slowdown.

recovery innovation

Banks use innovative methods to address the issue of NPA recovery. For instance, Bank of India has sought the services of retired staffers to bolster its recovery efforts. The commission payable to outside recovery agents is paid to these ex-staffers.

Here’s another instance. Recently, Arun Tiwari, Allahabad Bank’s Executive Director was seen poring over information on his mobile phone during a break at a banking conference in Mumbai. Tiwari was looking at reports sent by his zonal managers on the recoveries made by field staff across the country. Tiwari gets these reports every evening.

Every rupee recovered counts. Therefore, Syndicate Bank has operationalised a focused recovery team called ‘Stressed Tiny Assets Recovery Team’ aimed at maximising cash recovery of NPAs and upgrading existing NPAs. This initiative has resulted in the recovery of NPAs amounting to Rs 233.30 crore.

Bad loans are a drag on bank resources for two reasons – one, they don’t earn any interest income and second, they lock up precious resources in the form of NPAs. Therefore, recovery of bad loans has assumed urgency.

The gross NPAs to gross advances ratio for all banks deteriorated from 2.9 per cent as of March 2012 to 3.4 per cent as of March 2013.

In the case of public sector banks, this ratio worsened from 3.2 per cent to 3.8 per cent. Large and medium-sized companies, mainly from the iron & steel, infrastructure, power, textiles, construction, telecom and pharmaceutical sectors, have sought a bailout (or easier loan terms) from banks.

This is underscored by the fact that the restructured standard assets-to-gross advances ratio for all banks increased from 4.7 per cent as of March-end 2012 to 5.7 per cent as of March-end 2013. In the case of public sector banks, this ratio has worsened from 5.7 per cent to 7.1 per cent.

Lending a hand

In the April-June quarter alone, the corporate debt restructuring cell, the inter-bank forum for recasting loans jointly given by banks, received 27 corporate loan restructuring proposals for debt aggregating Rs 39,000 crore. While recovering loans is being given priority, banks are also helping customers who find themselves in dire straits due to the economic slowdown.

Vijaya Bank, for example, is planning to resort to rephasement or compromise settlement of loans. H.S. Upendra Kamath, Chairman and Managing Director, Vijaya Bank, said: “Rebalancing the credit portfolio by focusing on less risky sectors is the need of the hour. We are upping the barriers, such as higher credit rating at entry level, reducing ticket size of advances and also avoiding certain sectors.”

But bankers are not pressing the panic button yet.

K.R. Kamath, Chairman & Managing Director, Punjab National Bank, says that though the rising NPAs in the banking sector are a cause for concern, most Indian banks are resilient and can handle the situation. Emphasising that banks must now support needy companies, Kamath said, “Banks must now focus on separating the wheat from the chaff.”

Management change

The Finance Ministry too, is backing public sector banks to get tough with wilful defaulters, even going to the extent of seeking a change in management of the enterprises they run if they don’t pay up.

At a recent gathering of top bankers and industry, Rajiv Takru, Secretary – Financial Services, Ministry of Finance, said: “Companies must get used to the idea of change in management. If they cannot handle a company, then they must make way for another set of professionals.”

Bankers have been told to insist on a management change before they restructure the loans of companies that are unable to repay loans because of poor decisions the management took earlier.

S.L. Bansal, Chairman and Managing Director, Oriental Bank of Commerce, says he is hopeful things will turn around. “Though we are passing through a subdued economic environment, I strongly believe this is a temporary phase. And with the proactive fiscal measures initiated by the Government to contain the twin deficits (fiscal and current account), the economy will roll back to the envisaged growth trajectory.”

(This is the sixth part of a series on how companies in various sectors are coping with the slowdown.)

(With inputs from K.R. Srivats in New Delhi, Anil Raje Urs in Bangalore and Satyanarayan Iyer in Mumbai)

COMMENT NOW