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Debt refers to something that is owed or due either physically or metaphorically. In the
physical sense, the parties to debt are lenders(those who give) and borrowers (those who
receive). In the metaphorical sense, debt refers to a moral obligation not based on physical
value (e.g.: debt of gratitude).
Debt was the first form of commerce (barter system) documented in human history and
existed about 2,900 years prior to the invention ofcoinage. Today there are many examples
of lenders of monetary debt that include sovereign nations, banks, credit
card companies,payday loan providers, individuals, etc., who in many instances subject
their borrowers to contractual terms that designate the amount and timing of repayments of
the debt and that frequently include the payment of principal and interest.[1]
New Delhi: Indias state-owned banks, which control three-fourths of the assets of
the Rs.83 trillion local banking industry, are finding it difficult to recover their money
from defaulting borrowers although mounting bad loans put pressure on their capital
base and threaten their ability to grow in a tight competitive environment.
It is like putting toothpaste back into the tube, saidSoundara Kumar, a deputy
managing director at State Bank of India (SBI) heading its stressed assets
management department. Giving a loan is the relatively easy part, but recovery is far
more difficult. You have to act before the loan fully goes bad. All such loans very
closely monitored now through multiple channels.
About 6% of SBIs loans have turned bad and Kumars department is handling at
least Rs.20,000 crore worth of loans.
To hasten recovery, SBI has formed three different committees about two months ago
to monitor stressed assets and is likely to install a computer software by June to detect
early signs of slippages.
While Kumar heads one of the three committees that monitors stressed assets worth
between Rs.50 to Rs.100 crore, loans between Rs.100 crore to Rs.500 crore are
monitored by another committee headed by Pradeep Kumar, managing director in
charge of corporate banking. Loans of above Rs.500 crore that might turn bad are
monitored by a group led by SBI chief Arundati Bhattacharya.
Indias largest lender has also designated 52 branches as dedicated stressed assets
recovery branches, which handle recovery of loans in the range of Rs.10 lakh
to Rs.1crore.
A programme called Kitna Baki Hai (how much is left) to recover bad loans in the
agriculture segment, which constitutes 19% of SBIs total gross non-performing assets
(NPAs), has also been launched.
Under this, branches will report the progress of farm loan recovery to headquarters on
a daily basis.
In the past, there used to be some disconnect between our branches and
farmers,said M.G. Vaidyan, chief general manager, rural and agricultural business,
at SBI. We are now on a serious mission on the ground to reconnect the farmers and,
in the process, bring down the bad loans.
Mounting pressure
The story is not different for other state-run banks, which are fighting hard to pare bad
debt on their books.
Gross bad loans of Indian banks grew to Rs.2.43 trillion at the end of December,
about 36% rise from last year. Thats only half of the total stressed asset pile.
About Rs.4 trillion of loans are being restructured under the so-called corporate debt
restructuring mechanism and through bilateral restructuring.
Together, stressed assets constitute about 11% of the total loans of Indian banks.
These loans too can turn bad in a slowing economy, eventually impacting the health of
the financial system.
Indias economy grew at 5%the lowest in a decade in the fiscal year 2012-13 and is
widely expected to grow at sub-5% level in the current fiscal year as well.
Rating agencies have already flagged their caution on the rise in bad loans.
In February, India Ratings and Research Pvt. Ltd, formerly known as Fitch India, said
it expects Indian banks stressed assets to grow to 14% of total loans by March 2015.
Icra Ltd, another rater, on Thursday said that the gross NPAs of banks could rise to
4.2-4.4% by March, from 4.1% as on December.
Of this, the gross NPAs of government banks could rise to 4.8-5% by March, Icra
said.
The earlier banks recognise NPAs and take a hit on their books, the better. The more
you delay it, the problem will only become bigger. Banks need to isolate the stressed
assets and address the issue separately. Do not mix it up with normal business,
said Saurabh Tripathi, partner and director, head of financial services, Boston
Consulting Group.
The rise in bad loans has also put pressure on the capital base of state-owned banks,
since they are required to make additional provisions against stressed assets. Under
existing norms, banks need to set aside 5% for a loan they restructure, while the
provisioning can rise to 100% if the asset turns bad.
However, the Congress-led United Progressive Alliance government set aside
only Rs.11,200 crore for capital infusion into government-controlled banks for fiscal
year 2014-15, lower than Rs.14,000 crore last year. According to Moodys Investors
Service, this is less than half of what Indian banks actually need to meet the advanced
capital norms under the global Basel III rules.
Against this backdrop, state-owned banks are facing immense pressure from the
government, the majority shareholder, to recover loans and reduce bad debt.
Biggest challenge facing the public sector banks is NPAs, finance minister
P. Chidambaram said on Wednesday after a review of the performance of stateowned banks. Chidambaram asked banks to focus on recovery.
To recover money, banks are pushing their officials to do door-to-door recovery,
employing call centres to make regular follow-ups, besides clamping down on wilful
defaulters.
Our call centre makes about 700 calls per day to our borrowers across the country.
This has doubled our recovery. Going forward, I think this will be a very important
tool, said V. R. Iyer, chairperson and managing director of Bank of India, another
large state-run bank, on 30 January when the bank announced its December-quarter
earnings.
State-run banks actively using call centres for recovery of loans was less heard of till
recently, unlike their rivals in the private sector.
There is lot of focus going into recovery, said Arun Kaul, chairman and managing
director of UCO Bank, another state-run bank. On giving new loans, we are very
cautious, said Kaul. UCO Bank had 5.2% gross NPAs at end-December, compared
with 5.5% year-ago.
For 39 listed banking, gross NPAs for the June quarter rose 96.42% year-on-year to Rs6.3
trillion, from Rs3.21 trillion a year ago. Photo: Pradeep Gaur/Mint
Mumbai: Fresh accretion of bad loans moderated in the fiscal first quarter, with most
banks performing better in loan recovery, Reserve Bank of India deputy governor S.S.
Mundra said on Tuesday.
In April-June, the level of bad loans arising out of restructured assets also dropped,
Mundra said, referring to an investment advisory report by an unnamed third party.
The fresh addition may not be happening from the corporate lending side but from
MSME (micro small and medium enterprises), which is what the report is saying. We
will have to verify this claim. If that is the trend, there will be obviously some concern
about it, Mundra said.
While the banking sector as a whole seems to have performed well on loan recovery,
some individual banks diverged, Mundra said.
While for some the worst is behind, for others the problem still persists, he said,
adding that bad loan management was still a work in progress.
Provision will need to continue because of the fresh NPAs which are coming and
also due to ageing of old NPAs.., he said. Most of the cases which are recognised or
are being recognized, they carry substantial non-fund exposure also. As we move into
the year, there would be crystallization of some of the non-funded exposure, Mundra
said at a banking summit organised by the Federation of Indian Chambers of
Commerce and Industry (FICCI) and Indian Banks Association (IBA).
For 39 listed banking, gross NPAs for the June quarter rose 96.42% year-on-year
to Rs.6.3 trillion, from Rs.3.21 trillion a year ago.
Banks will have to do the hard work when it comes to resolution of troubled assets,
Mundra said, rather than depending on a third party. Meetings with respect to badloan resolution will need to be attended by senior members of banking consortiums to
achieve quicker action on accounts, he said.
Mundra also brought up the issue of misselling of third-party products among banks.
This was a cause for deep concern for the regulator, he added.
Mundra also cautioned banks against aggressively growing their retail, agriculture and
MSME loan books. We cant have unlimited farm loans...without farm reform,
Mundra said.
New Delhi: The government is scheduled to move in the Lok Sabha on Monday an amended bill
to strengthen debt recovery laws with an objective to improve the ease of doing business in the
country.
Introduced in the Lok Sabha in May, the bill seeks to amend four legislationsSecuritisation
and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act,
2002; the Recovery of Debts Due to Banks and Financial Institutions Act, 1993; the Indian
Stamp Act, 1899, and the Depositories Act, 1996.
Following the introduction, the Enforcement of Security Interest and Recovery of Debts Laws
and Miscellaneous Provisions Bill, 2016, was referred to a parliamentary joint committee.
As per the Lok Sabha schedule of legislative business for Monday, the Enforcement of Security
Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Bill, 2016, as
reported by joint committee is listed for consideration and passing.
The government has come up with this legislation at a time when there is mounting concerns
over loan recovery in view of stressed assets to the tune of over Rs.8 trillion in the banking
system. The legislation proposes to give the RBI powers to regulate asset reconstruction
companies, prioritise secured creditors in repayment of debts and provide stamp duty exemption
on loans assigned by banks and financial institutions to asset reconstruction firms.
Around 70,000 cases involving more than Rs.5 trillion are pending in debt recovery tribunals
and the proposed amendments would facilitate expeditious disposal of recovery applications.
Mallya left for the UK in early March as lenders to Kingfisher Airlines closed in on
him to recover money owed by the airline, grounded in 2012 under the weight of
heavy debt and accumulated losses and staff unrest over unpaid salaries