Robust recovery made from NPAs
Gross Non-Performing Assets (NPAs) of Public Sector Banks (PSBs) have declined by Rs.89,189 crore on the year to Rs.806,412 crore in financial year ended March 2019 based on provisional data from the Reserve Bank of India. It peaked at Rs.895,601 crore in March 2018.
As per RBI data on global operations, aggregate gross advances of PSBs increased from Rs.1,819,074 crore as on 31 March 2008 to Rs.5,215,920 crore as on 31 March 2014, said Finance and Corporate Affairs Minister. Nirmala Sitharaman in a written reply to Rajya Sabha on 25 June 2019.
As per RBI inputs, the primary reasons for spurt in Stressed Assets have been observed to be, inter-alia, aggressive lending practices, willful default/loan frauds/corruption in some cases, and economic slowdown.
Asset Quality Review (AQR) initiated in 2015 for clean and fully provisioned bank balance-sheets revealed high incidence of Non-Performing Assets (NPAs).
As a result of AQR and subsequent transparent recognition by banks, stressed accounts were reclassified as NPAs and expected losses on stressed loans, not provided for earlier under flexibility given to restructured loans, were provided for.
Further, all such schemes for restructuring stressed loans were withdrawn.
The Government adopted the comprehensive 4R’s strategy consisting of recognition of NPAs transparently, resolution and recovering value from stressed accounts, recapitalising Public Sector Banks (PSBs), and reforms in PSBs and financial ecosystem to ensure a responsible and clean system.
Steps taken under these strategies to expedite and enable resolution of NPAs of PSBs, and to improve the condition of banks include, inter-alia, the following:
Change in credit culture was effected with the Insolvency and Bankruptcy Code (IBC) fundamentally changing the creditor-borrower relationship, taking away control of the defaulting company from promoters/owners and debarring wilful defaulters from the resolution process and debarring them from raising funds from the market.
Over the last four financial years, PSBs were recapitalised to the extent of Rs.3.12 lakh crore, with infusion of Rs.2.46 lakh crore by the Government and mobilisation of over Rs.0.66 lakh crore by PSBs themselves.
Key reforms were instituted in PSBs as part of PSBs Reforms Agenda, include the following:
Board-approved Loan Policies of PSBs now mandate tying up necessary clearances/approvals and linkages before disbursement, scrutiny of group balance-sheet and ring-fencing of cash flows, non-fund and tail risk appraisal in project financing.
Use of third-party data sources for comprehensive due diligence across data sources has been instituted, thus mitigating risk on account of misrepresentation and fraud.
Monitoring has been strictly segregated from sanctioning roles in high-value loans, and specialised monitoring agencies combining financial and domain knowledge have been deployed for effective monitoring of loans above Rs.250 crore.
To ensure timely and better realisation in One-Time Settlements (OTSs), online end-to-end OTS platforms have been set up.
Positive impact on PSBs of Government’s 4R’s approach is now visible and includes, inter-alia¸ the following:
Recovered Rs.3.59 lakh crores over the last four years, including record Rs.1.23 lakh crores in FY 2018-19.
Assets quality has improved as reflected in 45% year-on-year reduction in slippage into NPAs in FY 2018-19, and 63% reduction in 31 to 90 days overdue corporate accounts by March 2019 from their peak in June 2017.
With stress recognition largely completed, significant headway in recovery and resolution under IBC, and reduced slippages as a result of improved underwriting and monitoring, gross NPAs of PSBs have started declining. As at March 2018, it was peak Rs.8.96 crore NPAs. With robust recovery, it declined Rs.89,189 crore to Rs.8.06 lakh crore end of March 2019.
By addressing the underlying causes behind the build-up of stress in PSBs through comprehensive reform to change credit culture and tighten discipline for every stakeholder in the financial system, institutionalising robust underwriting and monitoring, governance reforms, and leverage the transformation potential of technology, the risk of recurrence of excessive stress in PSBs has been minimised and PSBs have emerged stronger.
As per inputs received from RBI, the share of lending by PSBs and Private Sector Banks to real estate sector as a percentage of total lending has increased from 16.77% in 2013 to 17.57% in 2016.
Further, their total advances to the real estate sector rose from Rs.855,695 crore in 2013 to Rs.1,211,889 crore in 2016.
Note: Figures cited above for PSBs include those for IDBI Bank Limited, which was re-categorised as A Private Sector Bank by RBI with effect from 21 January 2019. fiinews.com
