Since then, the Reserve Bank has forced banks to report actual non-performing assets as assessed by the central bank, which has brought a huge divergence to light. For instance, Yes Bank, the country’s seventh-largest lender,under-reported its non-performing assets by 557.6 per cent in its annual report last year.
What this means is that more loans than anticipated are turning bad. India Ratings expects another Rs 2.6 lakh crores to slip into bad debts in the next year or so, the rating agency said in a release last month.
“As per Ind-Ra analysis Indian banks are sitting on unrecognised stressed loans worth of Rs 7.7 trillion,” the agency stated, adding that divergence revealed by banks recently will add to the pile of bad loans in the coming months.
Rush to recover
This is perhaps why public sector banks are hard-pressed to find a solution to the bad loan problem quickly. With more loans expected to turn bad at a time when the growth of bank lending is at its lowest in six decades, banks are going all out to recover whatever money they can.
The State Bank of India, which merged with its five associate banks on April 1, has filed more cases than all private sector banks combined. The bank and its associates had filed 1,705 suits by March compared to 1,229 cases by all private sector banks. This could be because of the sheer size of the bank’s lending book in the country. However, Pallav Mohapatra, deputy managing director of the State Bank of India’s stressed assets management group, insisted the bank’s balance sheet was healthy and its non-performing assets, at 6.4 per cent, were below the sector average of 9.3 per cent.
However, it was also reported that post-merger, the non-performing assets of the five associate banks soared to 9.1 per cent at the end of the June quarter from 5.9 per cent in the March quarter.
Mohapatra reasoned that public sector banks, including the State Bank of India, have been forced to take hard measures since softer ones were not working well enough. Hard measures include civil lawsuits and auctions while soft measures usually include offering a moratorium on interest payments.
“It is not just because of the clean-up forced by the RBI,” Mohapatra said. “We are realising that if we cannot receive full amount on a Rs 100-loan, then we are taking Rs 60 and converting Rs 40 into equity hoping that it will turn around.”
A banking analyst, speaking on condition of anonymity, said public sector banks will be the ones most affected by bad loans as a result of leaky processes. “Their underwriting is not the best in the industry. Sometimes, many other considerations are put in place rather than fitness of the borrower, which has led to some of this bad debt pile,” the analyst said. “Otherwise too, public sector banks are now becoming proactive in filing cases as compared to their lethargy earlier, but private sector banks have at least been watchful.”