No bad loans after March 2017 may be too tall a target

Banks are likely to miss the March 2017 deadline for cleaning up their balance sheets, given the slow progress on resolution of bad loans.

Banks are likely to miss the March 2017 deadline for cleaning up their balance sheets, given the slow progress on resolution of bad loans.

Chairman Kingfisher Airlines Vijay Mallya speaks at an event during the Civil Aviation Week - Airport & Airline 2007 Expo or AA 07, in New Delhi, India, Tuesday, March 27, 2007. The three day expo features equipment and services for airports and airlines, aiming to highlight the progress being made in the Indian civil aviation sector. (AP Photo/Gurinder Osan)(AP)

With demonetisation and currency management keeping bankers busy, lenders have made very little headway on recovery and resolution efforts in the last two months.

Former RBI governor Raghuram Rajan had given a March 2017 deadline to banks to clean up their balance sheets.

“We have seen 15% to 20% drop in recovery. Only three or four top banks tried selling assets (since demonetisation), but there wasn’t much success,” said Siby Antony, managing director and chief executive officer at Edelweiss Asset Reconstruction firm. “Very few deals amounting to around R1,500 crore were seen, while in the previous two quarters, it was R5,000-6,000 crore.”

Things, however, are likely to look up during the January-March period, he added.

Rajeev Rishi, chairman of Indian Banks’ Association (IBA), and managing director, Central Bank of India, said: “Past two months have seen less attention given to bad loans. But now the focus is back, since the pressure on bankers has relatively eased.”

A senior official with a public sector bank told HT that there has been no formal discussion on any concessions for the 2017 deadline. Majority of the identification of bad loans has happened. It, however, needs to be seen whether the resolution needs more time.

Over the last couple of years, the RBI has come up with various measures, including SDR (strategic debt restructuring) and S4A, (Scheme for Sustainable Structuring of Stressed Assets) to help banks tackle the bad-loan problem.

In six months from April to September 2016, non-performing assets (NPAs) crossed R7 lakh crore, with a few large banks still seeing a watch list of potential bad loans worth around R75,000 crore. NPAs are loans that do not yield returns

Besides, the 60-day relaxation on NPA recognition after demonetisation (for small borrowers) was misinterpreted by many as an extension of repayments, which also added to the trouble on recovery efforts. It affected collections in smaller segments, including commercial vehicles and cash-heavy small and medium sector enterprises.”

”Though retail borrowers are the ones mainly facing the crunch on repayments, companies with stressed assets were also unable to sell off their non-core assets due to demonetisation,” another banker added.

The cash crunch has slowed down economic activity in India, which mostly depends on cash, thereby stagnating funding and expansion efforts, and leading to less income and growth of small firms.