The proposed plan of the Government to ease bad loan pressure is expected to bring some hope not only for the Government but also for the entire banking industry in the country. In a bid to check its growth, the Government has adopted various mechanisms, including recasting corporate loans and reining in bad loans in Joint lenders’ Forum (JlF) platform. With such moves, it is expected that the pressure on non-performing assets (NPAs) or bad loan is likely to ease by end of this fiscal.
“In order to check bad loan growth, the Government is taking all possible measures and it has already identified some companies in power, infrastructure, steel, textile etc which are responsible for its rapid movement. As part of precautionary measures, the Government has decided to clear a mega debt restructuring plan this week for nine State power distribution companies. later, it has also a plan to look into the other sectors, which are the main causes for concern” the sources in Finance Ministry told The Pioneer.
It has been observed that banks, mostly public sector banks (PSBs) have been too cautious in loan disbursing process to the corporate accounts since first quarter of this financial year. “Triggered by the huge pile-up of bad loans, some banks have taken strict measures in this regard,” the sources added.
As far as the Government’s debt restructuring plan is concerned, the total loans are expected to add up to nearly Rs 4.3 lakh crore with 6-8 States once the Cabinet approves it this week. “As the loans would be taken over by the States and backed by sovereign guarantees, power distribution companies would be able to raise cheaper funds -- at as low as 8-10 per cent, compared to 13-14 per cent that they are currently paying,” the sources said, adding that the companies would be able to meet their payment obligations more comfortably.
As part of its effort to rein in bad loans, the Reserve Bank of India (RBI) also recently modified JlF norms to ensure mandatory presence of representatives of two systematically important banks - State Bank of India (SBI) and ICICI Bank - as part of the empowered group (EG). It has been decided that JlF will finalise the corrective action plan and the same will be placed before an empowered group of lenders, which will be tasked to approve the restructuring packages.
For corporate accounts, sources, however, said, the big and medium ones have been restructured and small ones are given other options, failing which they have been sold to various asset restructuring companies (ARCs). “Besides, those corporates who have given the fresh loans are being constantly monitored by the banks and the overall NPA accounts are seen reducing gradually, thereby giving hope for arresting the bad loan growth. With such proactive measures, I think the NPA level will come under control and the pressure will ease to some extent by the end of this fiscal,” the sources said.
When asked any timeframe to see the downward movement on bad loans, the sources said, “lowering the NPA to a satisfactory level is not an overnight job for the Government or for banks. It will take some time if it is handled with cautious approach. Banks cannot be too strict in this matter as they have to think about their credit offtake target too.”
Recently, credit rating agency CARE has found in its study that gross NPAs of PSBs have grown to 4.94 per cent till March 2015 as against 4.34 per cent in March 2014, while all banks’ NPAs are at 4.37 per cent in March 2015 from 3.86 per cent in the same period previous year.
The bad loans in the banks as on March 31, 2015 has risen to Rs 2,97,000 crore, excluding another Rs 4,03,004 crore of bad loans of 530 corporate companies shown as rescheduled and restructured loans under the corporate debt restructuring (CDR) scheme. Bad loans struck up in top 30 borrowing accounts of PSBs as on March 31, 2015 is Rs 1,21,162 crore, according to CH Venkatchalam, General Secretary of All India Bank Employees’ Association.
“Out of around 530 cases of borrower accounts, 178 cases involving Rs 67,667 crore have already failed and another 20 per cent is on the verge collapse in the current year. Banks are now handling 269 live cases involving a debt of Rs 2,74,026 crore,” said a RBI source involved in the CDR process.
As the RBI has already closed the CDR window, banks which want to revamp loans will have to make higher provisioning of 15 per cent or more. Some of the borrowers have approached the banks for restructuring under the JlF route and strategic debt restructuring (SDR) schemes.
However, a top official in the SBI disagreed and said, “The figure is still a concern for the banks, mostly for the PSBs where, I think, the NPA level will be under check then when the banks become more cautious in their lending approaches than they practise it ever before. As we have not seen much recovery despite selling some accounts to ARCs, bringing down its level is very difficult as of now. But a cautious approach is needed in which there should be more mechanism like JlF which can help the move in some way or the other.”
“As far as recast of loan in power companies is concerned, it will help save those accounts from being the NPAs in future. This is precautionary measures taken by the Government. If it is repeated with other sectors like steel, infra and textiles, then certainly we can hope bringing down it to a satisfactory level, though it will take some time,” he added.
last month, Finance Minister Arun Jaitley had expressed concern about the rising trend, saying that NPAs at present level are unacceptable. “They reached this level partly because of indiscretion, partly because of inaction and partly because of challenges in some sectors of the economy, which were evident through the high NPA levels in these sectors,” he had said.