Chandra Shekhar Ghosh: What we have observed is that lesser the ticket size of the loan, the better is the repayment rate. The repayment rates have improved, weathering demonetisation and goods and services tax (GST) related impact. But there are some customers who are irregular in their payments; we are trying to regularise them.
Pramit Jhaveri: Even after 10 years of the global credit crisis, it is difficult to say that the entire banking system, globally, has completely recovered. In India, the creation of the NCLT (National Company Law Tribunal), the
IBC regime and other new regulations have brought in a change in the behaviour of borrowers.
Romesh Sobti: In terms of the impairment of assets and earnings cycle, I would imagine we are very close to the peak. Maybe about 80 per cent of the recognition has been done. Now the loan provisioning cycle is lying behind.
Rajnish Kumar: As far as the NPA cycle is concerned, March 2018 was the peak, and after that we are seeing a decline. Our bank’s balance sheet is now much stronger than what it was.
On retail and micro, small and medium enterprises (MSMEs)
Sobti: It’s been a 10-year hiatus since we had any sort of negative movement on the retail part. My experience of 45 years shows that there is cyclicality to it. Of course, there is nascent sort of delinquency there. The role of the rating agencies probably has been exaggerated, but they played a role in keeping people compliant.
Kumar: As far as car or housing loan is concerned, both require specialisation and capability to process volume. Each bank’s capabilities are different for retail, and project or large corporates. Rebalancing of the portfolio is the need of the hour for any bank.
Rai: There is stress in MSME, but then the quality of the risk assessment in the banking system is also improving. GST is playing a great role here, because the MSME assessment earlier was more on their projections, but not based on cash flows. Now GST is giving more data, and MSME will be the new retail.
Ghosh: The skill-set of the staff is key in taking advantage of the MSME segment. You need to reach out to clients. Despite demonetisation and GST, when we softly approach the customers, they return the money. Human touch is very important.
On IBC and recovery of assets
Kumar: The approach of the banking system earlier was of rehabilitation; we are not doing that anymore. If today your account is an NPA, either you pay me, or I sell to ARCs (asset reconstruction companies), or I take it to NCLT. Rehabilitation, restructuring, all that are not possible in today’s environment.
Sobti: Although IBC is a very well-crafted legislation, bad losers are testing it right now. So, it’s like I lose here, I go to the Supreme Court (SC). It’s going to die down in the next six to ten months. With just one or two SC judgments, probably you are going to see a sea change in how the borrowers behave. The first
two quarters’ recovery figures are astonishing.
Rai: The first six months’ recovery has been the full year’s recovery of the last year. So that means we are practically doubling the recoveries this year. Maybe by the end of this year, we may see recoveries being better than slippages. That will be the best signal for the industry that the worst has really ended. It is not the insolvency, but the fear of insolvency that is putting sense back into corporates.
Jhaveri: Over a period of time we will start gravitating towards the precedents that worked. Think about the economic cycle, it also contributes to the recovery. If you see the steel industry, the amount of recovery that has taken place, it is really a consequence of the cycle, and certainly beyond most people’s expectations.
IBC or one time settlement
Kumar: A bird in hand is better than two in bush is definitely the approach now. If I can get a reasonable amount of money given the state of affairs, and if there is a certain threshold in our mind that once we recover this much money we are alright, we don’t hesitate to go for one time settlement.
In the first 12 large accounts referred to by the Reserve Bank of India (RBI), the recovery would be more than 50 per cent, but thesecond list will be lower at around 35 per cent.
How to improve IBC
Today it’s a close bidding process. That’s the chink in the armour. When somebody wins the bid, the loser goes and makes a direct bid, and then you go and challenge it in SC. Why don’t we do an open auction and close the issue right there? They all have the money, but they think because the banks
have taken a 50 per cent haircut, so I can get away with it. They want a really cheap buy. That’s not happening.
Kumar: If we allow these things to happen (re-bidding), in future the signal that we are giving to all the other bidders is that please don’t bid. For 14 months we run the process, and then somebody comes in with a fresh proposal. Here, lenders are losing the money due to the delay.
On incremental NPA
Kumar: There will always be NPA, but we should do only those things that are within our risk appetite framework. I don’t think today’s situation will be repeated. I don’t think we will lend the way we were lending in 2008 to 2010. We have IBC; we have February 12 RBI circular (one day default norm), which is stronger than IBC.
Due diligence should be made in finding the cash flow. Whether they will be able to pay back the money, we assess our customers first on that.