Time to initiate recovery process

The non-performing assets (NPAs) of banks have become a major problem for the government and the country. According to the Finance Minister, as of March end bad loans stood at Rs 245,809 crores compared to Rs 183,854 crores in 2012-13 and Rs 137,102 crores in 2011-12. Financial advisory, Alvarez & Marsal, found that as of September 2013, gross NPAs were Rs 230,000 crores and restructured loans Rs 400,000 crores adding up the Rs 630,000 crores (100 billion) constituted as much as 10.2 per cent of advances.

Recently some banks reported higher NPAs for the July-September quarter, which include Bank of Baroda, Syndicate Bank, UCO Bank and many others. Senior bank chiefs feel that the growth in bad loans may continue into the next year, thereby requiring more capital to act as buffer against the losses from the loans and all these are eating into the profitability of banks.

The Reserve Bank of India former Deputy Governor K C Chakrabarty had stated, “In the last 13 years, banks have written off Rs 1 lakh crore and 95 per cent of these are bad loans. Everyone talks of the farm loan write-off but it is the medium and large enterprises segment that has a 50 per cent share in NPAs. Restructuring of loans with retrospective effect has credit quality in banks.”

During the same period, they reduced NPAs to the extent of Rs 3.50 lakh crores. This was mainly because loans worth Rs 1.40 lakh crores were written off while another Rs 90,887 crores were upgraded to repaying loans status and Rs 1.18 lakh crores were recovered. Statistics reveal that the United Bank of India (UBI) has an NPA of over 7 per cent while the State Bank of India has 5 per cent bad assets. It is quite apparent that India has been alarmed by the rise in soured loans, specially of the nationalized banks that dominate the banking system. Stressed loans of banks are estimated to be at least 10 per cent of all loans. Fitch Ratings expects this to rise to 15 per cent by March 2016.

Let us take the case of Kingfisher Airlines, which has closed down for quite some time now. The controlling shareholder, Vijay Mallya, after much pressure, has been named a wilful defaulter by his bankers. Mallya was unsuccessful in his efforts to revive the airlines and find new investors. Samo goes with th arrets of the Syndicate Bank CMD. The recovery process has to be strengthened and a fast mechanism evolved for which the RBI and thefinance ministry have a big role to play.