In a move to ease pressure on bad loans that have been a prime concern for the banking sector in the country for a long time, almost all banks, mostly public sector lenders plan to sell it to the asset restructuring companies (ARCs) for its recovery. As the bad loans or non performing assets (NPAs) have been piled up to an unexpected level, the bankers are also in a move to restructure some key accounts, especially in the infrastructure and power sector, to bring it down to a comfort level.
“As bad loan has been our prime concern, there is no option left but to sell it out to the ARCs to ease the NPA pressure. The soaring bad loans have eaten out the credits of banks, resulting in a hit in last quarter’s earnings of almost all public sector banks except State Bank of India whose asset quality has shown a marginal improvement”, banking sources in the know told The Pioneer.
Sources, however, said that most of the default accounts in power and infrastructure sector are under lens. “We have taken a cautious move to keep a tab on the key default accounts, especially in power and infrastructure sector, and plan to restructure those accounts to bring the NPA level at par,” the sources added.
Confirming the move, former Chairman and Managing Director of a public sector bank said, “As bad loan’s upward movement is main concern for all banks, some measures need to taken to ease the pressure. This should not be a one-night measure; rather it should be checked on annual basis. Only default accounts which are beyond control of banks are sold to the ARCs. I think, it will take some years to bring the NPA at a comfort level, if banks take the cautious approach on such accounts.”
When asked about any accounts in particular, he added, “Generally, we do not touch any big accounts for recovery, but small ones are recovered at the General Manager level. For big accounts, the board only takes a decision to take a call on recovery. Initially, banks try to restructure the accounts, offering various options to settle the loan. If banks fail to resolve it, then they take a call to sell them out to any recovery companies.
In order to check this bad loan menace, the central bank had asked banks to form joint lenders’ forum (JlF) to initiate the resolution mechanism. Despite the implementation of JlF framework, it failed to certain extent and it needs further improvement on the ground level.
In last one year, the banking sector’s asset quality woes have worsened further with gross non-performing asset (GNPA) ratio inching to 4.45 per cent as on March 15 this year, as compared to 4.1 per cent in the same period last year, according to the latest data released by the Reserve Bank of India (RBI).
The GNPAs for public sector banks as on March 2015 stood at 5.17 per cent, while the stressed assets ratio stood at 13.2 per cent, which is nearly 230 bps more than that for the system.
However sources said that concerned with the rise of NPAs, top 2 public sector lenders - State Bank of India (SBI) and Punjab National Bank (PNB) - have already started restructuring some key accounts, especially in power and infrastructure sectors.
SBI Chairperson Arundhati Bhattacharya said while announcing the quarterly results of the bank. “We are now intending to clean up the balance sheet and pursue recoveries. last year also, we had pursued a two-pronged strategy of consolidating the existing businesses and exploring new ones.”
However, PNB Executive Director Gauri Shankar said, “We have restructured around 3,3350 standard restructuring account of assets worth Rs 15,241 crore during the quarter, including bad loans of Rs 404 crore. Out of such accounts 90 per cent belongs to the industry accounts. The bank’s stress on NPA mostly came from infrastructure, power, sugar and textiles.”
largest public sector lender SBI on Friday reported its gross non-performing assets (GNPA) was at 4.25 per cent versus 4.90 per cent quarter-on-quarter while net NPA stood at 2.1 per cent against 2.8 per cent sequentially. But the PNB’s GNPAs rose to 6.55 per at the end of March 2015, from 5.25 per cent a year ago. The net NPAs too rose to 4.06 per cent against 2.85 per cent at March 2014. The bank’s assets worth Rs 15,241 crore during the fourth quarter including bad loans of Rs 404 crore.
“Most of the projects belonged to power and infrastructure sector. The banks failed to recover loans and checking increase in NPAs on account of reasons such as poor industrial scenario, low profitability, delay in getting statutory approval resulting in projects getting extended,” said an official in the Finance Ministry.
According to Government data, about 23 per cent of the 74 projects to which public sector banks provided loans worth about Rs 54,000 crore in 2014-15 have turned as bad loans