While the non-performing assets or bad loans of banks are reaching new highs, the lenders are finding loan recovery difficult due to legal and procedural hurdles
While the net non-performing assets (NPAs), or bad loans, of banks are on the rise, bankers are facing several issues including legal and procedural hurdles while recovering their dues. Several bankers present at BANCON 2013 in Mumbai, however, assured that banks are paying a lot of attention for loan recovery from big and small defaulters.
"There are many challenges (in recovering dues) including legal ones. Even after using the Securitisation and Reconstruction of Financial Assets & Enforcement of Security Interest Act, 2002 (SARFAESI Act), defaulters are found obtaining stays from any court, including labour courts. We then have to rush to that court and get the stay vacated. This is making recovery (of dues) difficult," said Arundhati Bhattacharya, chairperson and managing director of State Bank of India (SBI).
Speaking earlier, finance minister P Chidambaram also asked bankers to deal firmly with wilful defaulters, but handhold those victims of circumstances who are reeling under the impact of the economic slowdown.
The NPAs of 40 listed banks, including State Bank of India (SBI), Bank of Baroda (BoB), Punjab National Bank (PNB), Central Bank of India, IDBI Bank and Union Bank of India jumped 38% or by around Rs35,424 crore during the first half of FY2014 due to high provisioning. Net NPAs of these lenders jumped to Rs1.3 lakh crore from Rs93,109 crore as on March 2013, says a study conducted by NPASource.com.
SS Mundra, chairman and managing director of Bank of Baroda said, banks use two options in case of bad debt, recover and restructure. "Recovery option is used when there is other choice left (for repayment of loan by the borrower) and there are several procedure involved in this process. Restructuring of loans is mostly used whenever possible," he said.
According to a research paper by McKinsey & Company, capital allocation by Indian banks is questionable. "In India, around 73% of total banking credit goes to non-retail customer segment and about 40% of this is channelled into sectors such as infrastructure, metals and mining, auto, textiles, durable and paper products that are currently not creating value," it said.
"On an incremental basis, 44% of corporate credit was channelled into these sectors. The level of credit allocation, especially for infrastructure, from the banking sector is significantly lower for other Asian economies such as Thailand, Indonesia and Singapore. While a lot of the asset quality problems in the (Indian) banking industry today are a reflection of the macroeconomic situation, too much emphasis on just big ticket lending to build balance sheets will lead to concentration of lending to fewer companies and continued exclusion of small business, specialised and mass lending opportunities," McKinsey & Company added.
NPAsource.com said, Out of the total 40 listed banks, 14 banks have reported more than 50% jump in net NPAs during the first six months of FY14. According to analysis done by NPAsource.com, the share of the top ten banks in net NPAs has come down to 67.8% in September from 70% in March 2013. The analysis also shows that net NPA of seven banks was higher than 3.5% as on September 2013 as against none as of March 2013.