SBI, other banks struggle to recover dues from small firms

Mumbai: India’s largest lender, State Bank of India (SBI), managed to recover Rs.800-850 crore through a “loan resolution week” it organized from 25 to 31 May, a senior bank official said.

The loan resolution week was aimed at providing one-time settlement offers to defaulting borrowers to try and recover at least a part of loans that had turned bad.

SBI, along with most other banks, has been pushing recoveries to try and reduce stressed assets on balance sheets. Such assets have built up over the past couple of years as economic growth slowed and implementation of large projects stalled due to delayed clearances and concerns over the viability of ventures planned during the years of the economic boom.

As of March 2015, gross non-performing assets (NPAs) for 39 listed banks stood at Rs.3.02 trillion, up 25.07% from Rs.2.41 trillion a year ago.

While bad loans emerging from sectors such as infrastructure are taking time to resolve, banks such as SBI are focusing on recoveries from smaller accounts in the interim.

“We have been able to make recovery in about 16,000 loan accounts across the country,” said P.K. Malhotra, deputy managing director and group executive, stressed asset management, SBI.

While a majority of the accounts that contributed to the recovery were from the retail portfolio, about 700 accounts came from the bank’s small and medium enterprises (SME) loan book.

“We had only 16 SAMBs (stressed asset management branches) across India which were solely focused on the SME loan resolution; others had regular business going on. So, 700 accounts being resolved in under a week is a satisfactory result,” Malhotra said.

SBI’s inability to make a major dent on the stress in its SME portfolio underlines the troubles faced by the banking sector in recovering dues from firms. While retail borrowers tend to opt for one-time settlements, small corporate borrowers wait for banks to take their respective cases to court, which often allows them to avoid repayment for years due to judicial delays.

Among the five branches that Mint visited in central Mumbai on 29 May, none had made any significant recoveries among SME borrowers.

According to the manager of one such branch in Ghatkopar West, a lot of the SME loan accounts are under litigation in debt-recovery tribunals. These borrowers will not come for resolution and prefer to try their luck at the tribunal, he said, requesting anonymity as he is not allowed to speak to the press.

For SBI, NPAs from its SME and mid-corporate loan portfolios stood at Rs.39,416 crore, contributing to 69.5% of the total Rs.56,725 crore of gross NPAs that the bank reported on 31 March 2015.

To curb the stress arising from the sectors, SBI has consciously avoided increasing its exposure to SME and mid-corporate borrowers.

In fiscal year 2015, the bank’s mid-corporate loan book stood steady at nearly Rs.2.28 trillion, showing no growth compared to a year ago. The lender’s SME loan book stood at a little over Rs.1.8 trillion in the same period, as compared to Rs.1.79 trillion in the previous year.

While SBI and other lenders have been pushing recoveries, not all efforts have yielded results.

In March, SBI decided to auction nearly 350 properties worth Rs.1,000-1,200 crore, but was able to sell only 120 properties, raising Rs.90-100 crore in the process. The properties sold were largely residential properties, while commercial ones remained untouched.

The next mega e-auction is planned on 12 June, the bank said through an advertisement in leading newspapers.

Recoveries for most large banks have been significantly lower than the freshly added bad loans during fiscal 2015, data collated by Angel Broking shows. For SBI, fresh slippages during the year stood at Rs.17,632 crore, while recoveries were at Rs.9,234 crore.

Similarly, for India’s largest private sector lender, ICICI Bank Ltd, recovery during the four quarters of 2014-15 stood at Rs.2,301 crore, while freshly added bad loans stood at Rs.8,407 crore.

According to a February report by ratings company Icra Ltd, the ratio of recoveries and upgrades to gross non-performing assets (NPAs) in the October-December quarter at public sector banks was 14%, compared to 40% in the April-June quarter, with small and medium-sized borrowers being a stress area.

“Historically, we have seen that 40-50% of the loan amount that slips to bad loan category gets upgraded to standard, but only over a period of three to four years. That pace should ideally continue,” said Vaibhav Agrawal, vice-president (research), Angel Broking.

Agrawal expects the recovery numbers to improve over the next two years as the economy improves.

“There should be a dramatic shift in NPA numbers. If you check the time period between 2003 and 2007, gross NPA ratio of banks went from 5-6% to about 1% of advances as the economy improved and smaller as well as large borrowers cleared their dues,” Agarwal said.