According to a recent press report, the SBI has recovered only ₹8,969 crore out of the ₹1,23,432 crore written- off assets between FY13 and FY20. That is a dismal 7 per cent recovery rate. An RTI reply filed by a newspaper revealed that ₹4,32,584 crore was written off by public sector banks between 2015-16 and 2018-19, and only ₹45,659 crore (roughly 10 per cent) was recovered. Such figures for private banks are not readily available, but are unlikely to be very different.

Written-off assets are loan assets that have turned bad on account of repayment defaults for at least three consecutive quarters; and present difficult challenges in recovery. Banks are permitted to write off such loan assets on the basis of their judgment. Writing off such bad loans reduces the gross NPAs (GNPAs), frees the accumulated provisions and helps the bank ‘clean’ its books. It also gives the bank a tax break. In the last few years, banks have increasingly taken recourse to such an exercise, which has helped them reduce GNPAs in a situation where recovery has often been tardy.

The recovery of accumulated dues on loan accounts has always been an extremely challenging task. Current dues, which are normally serviced from cash flows generated out of current business operations, pose less of a challenge if the cash flow is adequate. If business operations do not generate adequate cash flow, servicing of even current bank dues could become difficult, let alone past accumulated dues. Servicing of past accumulated dues could be difficult even for a unit that is able to clear its current dues, as the residual cash flow thereafter may be inadequate.

In all such cases, banks have in the past restructured the loan and deferred/funded past dues. But as banks are now ipso facto restricted from restructuring, withdrawal from accumulated reserves and exogenous infusion of funds are required to clear past dues and make the accounts regular. As most of the written-off cases are operationally weak and do not have access to adequate accumulated cash reserves, exogenous infusion becomes vital.

In case such an infusion does not happen to clear past accumulated dues, banks are left with little alternative but to enforce security on the assets and the collaterals of the company, which are charged or are on lien to the bank.

Time consuming

For quick recovery, banks have taken recourse to such measures in written-off cases. However, success through the legal route for recovery has always been difficult and time-consuming. Inability to enforce security has been the most important reason for dismal recovery from W/O cases.

Bankers have found that it has always been a challenge to get the promoters of such weak units to bring in exogenous funds towards clearance of past dues. However, such an infusion and the urge to settle the loan account has been positive in a scenario of economic recovery/boom, where the underlying assets/collaterals mortgaged or charged to the bank, usually gets repriced higher in the market; and/or a situation where there is a real/perceived threat of losing the assets.

Strong economic growth in India from around 2004 to 2008 has also been a period of asset repricing and good recovery of bank dues. Bankers also saw an improvement in the recovery and a strong willingness to settle bank dues after promulgation of the IBC.

As the prospects of economic recovery and strong growth appear bleak in post-Covid times, the government may like to consider reintroduction of the IBC in all cases, with adequate safeguards, and strengthen it further in the interest of recovery of bank dues.

The writer is former deputy MD of EXIM Bank and former MD and CEO of IDBI Asset Management Company

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