SBI to Sell Rs 5,000 Crore NPAs to ARCs Shortly

By ENS Economic Bureau - MUMBAI: 18th March 2014

The country’s largest bank, the State Bank of India became the latest to join the bandwagon of banks hawking distressed assets in a bid to strengthen their balance sheets and dispose of non-performing loans from their books.

According to reports quoting a senior SBI official, the bank will put Rs 5,000 crore out of nearly 70,000 crore of distressed loans up for auction before March 31. This follows other banks like United Bank of India which have also decided to rid themselves of non-performing loans after reporting gross non performing assets (NPA)  equalling 10.82% of advances and a loss of Rs 1,238.08 crore for the December 2013 quarter. When contacted, a State Bank of India spokesperson refused to confirm or deny whether they were putting Rs 5,000 crore of assets on the block in this quarter.

The urgency to dispose of these assets comes as the Reserve Bank of India’s (RBI) new guidelines on provisioning for non-performing loans come into effect from April 1, 2014. According to the new guidelines introduced by the RBI last month and notified last week, banks are incentivised to recognise and dispose of NPAs early.

Non banking finance companies (NBFCs) and private equity are permitted to participate in the auction process. Rating firm ICRA noted that, “the RBI framework is expected to strengthen banks’ monitoring process and joint efforts for resolution and recovery. It could have a positive impact on their asset quality over the medium to long term.”

ICRA, which is partly owned by Moody’s Investor Services, said in a report recently that the banking sector will continue to be under stress on account of bad loans.

“Overall, gross non-performing assets (Gross NPAs) for public plus private banks increased from 4.0% as on September 30, 2013 to 4.1% as on December 31, 2013. The deterioration was primarily because of the slippages posted by the public sector banks, for whom the gross NPA percentage increased from 4.5% as in September 2013 to 4.7% as in December 2013,” ICRA noted.

More and more banks are joining the queue to unload non-performing loans. It was reported last week that United Bank plans to dispose of around Rs 700 crore in NPAs to asset reconstruction companies. Chennai-based Indian Bank also invited bids for “18 individual NPAs” through newspaper advertisements recently.

SBI tweaks recovery model

BL :15 Feb 14

With bad loans surging 27 per cent year-on-year to touch Rs. 67,799 crore towards the end of December, State Bank of India has got into a ‘non-performing asset control’ mode, tweaking its recovery model and setting up committees to check further slippages.

The bank has created four General Manager positions for North, South, East and West to focus more on bad loan recovery.

These officials will be in charge of the stressed assets recovery branches (SARBs) in the circles, said SBI Chairperson, Arundhati Bhattacharya.

“We have also made it easier for the other verticals – Corporate Accounts Group (CAG) and Mid-Corporate Group (MCG) – to migrate all their accounts which need hard recovery measures into Stressed Assets Management Group (SAMG).”

“And with this we hope SAMG will be much more focussed and be able to bring about faster (NPA) resolution,” she said.

Committee approach

India’s largest bank has created various committees to look into stressed assets and accounts that are beginning to show weakness.

“The largest of the committees, the one that looks at the largest loans – those above Rs. 500 crore – is headed by me,” said the SBI chief.

The committees that look at loans between Rs. 100 crore and Rs. 500 crore and between Rs. 50 crore and Rs. 100 crore are headed by Pradeep Kumar, Managing Director (Corporate Banking), and Soundara Kumar, Deputy Managing Director (Stressed Assets Management Group), respectively. The committees that look at loans between Rs. 25 crore and Rs. 50 crore and between Rs. 5 crore and Rs. 25 crore are headed by the heads of circles/verticals and by the General Managersrespectively.

Loans between Rs. 1 crore and Rs. 5 crore will be looked after by Deputy General Managers.

“So, with these committees in place, there are weekly reviews of the accounts. We do an ABC analysis of the ones that require immediate attention and then there is a follow-up on the action points to ensure that the accounts get enough attention, and the chances of their slipping are minimised,” said Bhattacharya.

ABC analysis is an analysis of a range of items that have different levels of importance and should be handled and controlled differently.

(This article was published in the Business Line print edition dated February 15, 2014)

Banks’ recoveries improve on tougher steps

 F E :hashidhar KJ | Mumbai | Updated: Feb 11 2014, 13:22 IST


Banks are stepping up efforts to recover as much money as they can.

Amid a tough macroeconomic environment, which has kept asset quality under pressure, banks are stepping up efforts to recover as much money as they can. A look at the results for the three months to December 2013 shows that most public sector banks have managed to recover money primarily through the sale of bad loans to asset reconstruction companies (ARCs).

The Delhi-headquartered Punjab National Bank (PNB) had the highest cash recoveries in Q3FY14 of Rs 2,107 crore, an increase of over 40% both sequentially and year-on-year. Similarly, Bank of Baroda’s recoveries increased 93.14% y-o-y to Rs 197 crore. Apart from selling of bad assets to ARCs, Bank of India and Central Bank of India have set up committees to oversee and follow up on wilful defaulters on a weekly basis as part of their recovery efforts.

Bank of India CMD VR Iyer told FE that the bank is strengthening monitoring and recovery efforts. "We are taking very strong action against wilful defaulters and also resorting to the sale of assets to ARCs,” Iyer said. Recoveries at BoI increased 174.25% y-o-y and 134.98% sequentially to Rs 1,001 crore in Q3FY14.

Iyer added that the bank is using a call centre and correspondents to follow up on borrowers, which has boosted recovery efforts. “In fact, our call centre makes about 700 calls per day to our borrowers across the country. This has doubled our recovery. Going forward, I think this will be a very important tool,” she said.

Bank of Baroda CMD SS Mundra said the bank is in the NPA formation phase so far and would soon enter the phase of reversal or upgradation. “The reduction in NPAs will really start after that and this year we may assess the possibility of selling some bad loans,” he added.

Experts also feel that banks are well collateralised in the form of property or machinery, which compels borrowers to settle their dues rather than default. “The prices of the collateral have generally been stable. There is a strong incentive for corporate borrowers to come and settle their dues with banks. This could be pushing recoveries up in banks,” said Ananda Bhoumik, senior director, India Ratings.

However, most banks agreed that there were still concerns regarding asset quality and they may have to restructure more loans. ICICI Bank, the country’s largest private sector lender, said that it has a restructuring pipeline of Rs 3,000 crore in the coming quarters.“I think the industry has continued to see additions to NPAs and restructured assets. And, I think we have not yet seen the full impact of additions of NPAs and restructured assets and will continue to see more additions in the next couple of quarters,” said ICICI Bank CEO & MD Chanda Kochhar.

Take stern measures against wilful defaulters: FM to banks

 F E :ENS Economic Bureau | New Delhi | February 11, 2014 3:43 am


Chidambaram said banks are yet to finalise the amount of retained profit they will infuse as additional capital.

Finance minister P Chidambaram on Monday expressed concern over rising bad loans of banks and directed them to take stern steps against wilful defaulters.

“We can’t show laxity to wilful defaulters. It can’t be where loans will become non-performing, where borrowers prosper and lenders suffer,” he stressed, adding that banks must pay attention to the portfolio of non-performing assets (NPAs), identify the wilful defaulters and take measures against them.

He, however, cautioned that banks should try to help those who are caught in business downturn to recover so that they can pay the loans in course of time. “One must be sympathetic, one must be stern,” said Chidambaram at the 78th foundation day of Indian Overseas Bank here.

NPAs or bad loans of public sector banks jumped by 28.5 per cent to Rs 2.36 lakh crore by September 2013 from Rs 1.83 lakh crore in March 2013. Total NPAs had gone up to Rs 1.37 lakh crore in March 2012 from Rs 94,121 crore in March 2011.

In fact, the issue was also recently taken up by the Parliamentary Standing Committee on Finance, while the Reserve Bank of India, too, had highlighted the rising stress from bad loans in the banking sector and warned that failure of even one corporate group could wipe out 60 per cent of the banking system’s capital.

Meanwhile, pointing out that huge amount of capital is required in the near future, Chidambaram also urged banks to find internal sources for capital infusion by retaining their profits.

“… I sincerely hope that a significant part of retained earnings can be infused by banks as capital,” he said, pointing out that banks can use the capital for various purposes such as declaring the dividend. Banks infused Rs 35,000 crore from their retained earnings as capital in 2011-12 and Rs 37,936 crore in 2012-13.

Chidambaram said banks are yet to finalise the amount of retained profit they will infuse as additional capital.

All profit can’t be used to pay higher wages: FM to bank employees

New Delhi: With nearly eight lakh employees of public sector banks on a two-day strike for higher wages, finance minister P Chidambaram on Monday said banks can not use their profits only to hike salaries as they have to fulfill other obligations as well. “While claims of officers, staff and employees must be duly acknowledged, and a fair and just wage settlement is arrived at, there are other claimants to banks’ profit,” he said. ENS

To protect lenders, mortgage registry to cover more assets

New Delhi  B L Jan. 10: 2014

Banks and lending institutions may soon be required to file with a central registry all information on loans sanctioned for gold jewellery, plant and machinery, corporate brands and logos.

A legal working group set up by CERSAI and International Finance Corporation, under the chairmanship of M. R. Umarji, Chief Legal Advisor, Indian Banks’ Association, has recommended that the scope of CERSAI be expanded to cover movable assets, tangibles and intangibles.

CERSAI (Central Registry of Securitisation Asset Reconstruction and Security Interest of India), a state-owned entity, currently operates a central registry with which information on all equitable mortgages is filed by lending institutions.

This legal working group has also recommended to the Finance Ministry that the scope of CERSAI be expanded to cover all kinds of mortgage transactions.

Transactions rising

The total number of transactions on the CERSAI portal is nearly 10 million and is continuously expanding. As many as 378 lending institutions are registered with CERSAI.

CERSAI was established with the main objective of protecting the lenders against frauds/misrepresentations and preventing multiple financing against the same asset (immovable property in the current scenario).

Any move to enhance the scope of CERSAI will enhance the confidence among lenders and result in efficient pricing of loans for such activities, including movable assets and intangibles such as corporate logos, R. V. Verma, Chairman and Managing Director, National Housing Bank, said here on Thursday.

The report of the legal working group was released by Namo Narain Meena, Minister of State for Finance.

Though recent years have witnessed expansion of housing finance market and private sector participation in the growth of housing sector, there is a need for matching growth and expansion in the supply of serviced land and infrastructure, Meena added

Expanding scope Central registry currently covers only equitable mortgages Joint legal group recommends expanding scope to all mortgages 

Also, calls for coverage of movable assets, intangibles

Banks seek leeway from RBI

Manojit Saha & Abhijit Lele  |  Mumbai  

January 6, 2014 Last Updated at 00:59 IST

Say 30 days not enough to resolve stress; 

want higher provision norms deferred 

till economy picks up

Bankers seem to be finding it difficult to implement the Reserve Bank of India's (RBI's) new guidelines on identification and early resolution of stress, though they admit the move is in the right direction and will bring discipline among corporate borrowers as lenders.

Lenders have sought more time from the banking regulator, as they feel the 30-day stress-resolution norms are a bit too stringent. According to them, at least 60 days will be required to firm up the resolution mechanism, known as the Corrective Action Plan (CAP).

RBI's discussion paper on early recognition and resolution of financial distress has recommended that banks come up with a CAP in 30 days under a joint lenders' forum (JLF).

FEELING THE SQUEEZE

RBI’s proposals Lenders’ panel: Early formation of a lenders’ panel with a deadline to resolve the issue Incentives: For lenders agreeing to a plan — collectively and quickly Provision: To be accelerated if no agreement is reached Future trouble: Expensive future borrowings for those not cooperating with lenders in resolution NPA sale: Lenders could spread losses on sale over two years More Parties: Sector-specific companies/private equity firms encouraged to play active role in the stressed asset market

Bank of India Chairperson & Managing Director V R Iyer welcomes the proposal of having a definite timeline for bankers to act. "But the suggested timeline (30 days) to firm up a package is too stiff," she tells Business Standard.

"Banks have to conduct audits, such as receivables audit, viability audit and forensic audit, before working out on package. These cannot be done within suggested timeframe. It needs at least two months to complete work," she adds.

The CAP involves rectification - that is, obtaining a specific commitment from the borrower to regularise the account within a specific time period, without involving any loss or sacrifice on the part of the existing lenders. It includes restructuring and recovery of stressed accounts.

At present, banks are not very prompt in working on proposals, especially when that involves a large number of lenders. Each bank takes its own time and, at times, it takes even six months to finish the work.

According to bankers, their views has been conveyed to RBI through the Indian Banks' Association (IBA). "This move will bring all bankers together at an early stage for the formation of a joint lenders' forum. We will also conduct workshops to take the idea forward. This will ensure smooth implementation of the initiative," said IBA Chief Executive Mohan Tanksale.

IBA has sought time till the end of the month - RBI had wanted a feedback on the proposals by January 1 - to convey its overall views. RBI is keen to implement the proposals by the end of the financial year.

Another issue bothering the banks is the proposal on accelerated provisioning. The central bank has proposed higher provisioning if banks fail to report their stressed-asset status early or resort to deferring NPA classification.

They are to face a higher provisioning requirement if they fail or decline or delay implementation of debt recast, as agreed in JLF.

"The present macro conditions - characterised by a long spell of low economic growth, sharp rise in pool of stressed assets and a higher burden of credit costs - are not conducive for accelerated provisioning," says a senior executive of a public-sector bank.

Bankers say there is a trend of minority banks (those with limited exposure to a particular borrower) often not wanting to participate or putting roadblocks in the proposed debt recast plan.Banks have made a request to the regulator to defer the accelerated-provisioning requirement by six-nine months, or till the economic activity picks up.

Those involved in the turnaround exercise for companies, on the other hand, say this is the right time to introduce accelerated provisioning. Nikhil Shah, senior director at Alvarez & Marsal India Pvt Ltd, the Indian arm of a US-based firm specialising in turnaround management and corporate restructuring, says it is feasible in India. It should be introduced now to mandate banks to recognise problem early and deal with it.

When it comes to pushing for a change in management at companies that are NPAs or are undercorporate debt restructuring packages, bankers are receptive.RBI is has been talking about it. It is difficult to bring management change. But, it could act as a pressure point. In the process, we may get professional advisory firms to ensure promoters do not use delay tactics, says Bank of India's Iyer.

RBI flags rising risks for banks from bad loans, stressed corporates

 
BL ;MUMBAI,JAN 1,2014: 

Financial Stability Report warns of cascading effect of default

 

Banks are more at risk now than six months ago with a jump in bad loans and a rise in the number of loans restructured by stressed companies.

According to the Reserve Bank of India’s latest Financial Stability Report, the inter-linkages among banks heighten the risk in case even one large corporate falters in keeping up with the debt repayment schedule.

“The Banking Stability Index (BSI), which measures the expected number of banks that could become distressed given that at least one bank becomes distressed, has risen sharply since August 2013,” the report said. It did not, however, mention the number of banks that would be affected.

In his introduction to the report, RBI Governor Raghuram Rajan said that the stress test assumes extreme conditions but shows that the financial system in India is resilient to pressures at this point in time but there is a need to be vigilant.

Contagion problem

The report said that a large loss caused by a corporate to a bank may not be restricted to that lender alone. It can distress the entire system. “If, in the case of one or more banks, the loss is large enough to cause distress to the bank, there will be further losses (to the entire banking system) due to the contagion caused by the distressed bank,” the report warned.

For instance, if the bad loans double for a large bank, the additional losses to the banking system would increase by 26.8 per cent of the total capital. The RBI also admitted that part of the problem was banks’ large exposures to big corporates.

“In the Indian context, a bank’s exposure to a single borrower can go up to 25 per cent of the bank’s total capital, while its group exposure limit can go up to 55 per cent of the bank’s total capital. These exposure norms have evolved in the context of the country’s growth and development requirements, but are on the higher side by international standards,” cautioned the report.

The RBI said five sectors — infrastructure, iron and steel, textiles, aviation and mining — account for about 24 per cent of the total advances of Scheduled Commercial Banks, and account for around 51 per cent of their total stressed advances.

On the broader economy, the RBI Governor said that the outlook had improved, with exports gaining momentum. “It is imperative that long-delayed legislative reforms are pushed through, stalled infrastructure project clearances continue and fiscal consolidation remains on track in order to maintain the momentum.”

Broader economy

In the second quarter of the current fiscal, India’s GDP grew 4.8 per cent against 4.4 per cent in the previous quarter. He said high inflation has meant that there is limited room for cutting interest rates to boost growth. In addition to the US Fed’s tapering over the next year, a potential source of uncertainty in India would be the next year’s general elections. “A stable new government would be positive for the economy,” he said.

Sting Operations, Bad Loans Hit All from SBI to Yes Bank

By Kumar Dipankar | PTI

Published: 24th December 2013 04:03 PM

Last Updated: 24th December 2013 04:03 PM

From the largest lender SBI to the youngest Yes Bank, the nation's banks were fined for violating regulatory norms after sting operations exposed chinks in their armour.

The year 2013 saw the Reserve Bank of India (RBI) nudge banks to not only improve customer services and reduce bad loans but also look at plugging loopholes in the regulatory system ahead of the entry of new banks.

The much-awaited guidelines for new banks were released by the RBI, which will provide licences to some of the 25 applicants in the coming year.

Initially, 26 entities evinced interest in entering the banking arena. Tata Sons, the holding company of the Tata group, withdrew last month, leaving 25 players in the fray. Tata Sons pulled out a couple of months after Venugopal Dhoot's Videocon withdrew its application.

Mahindra & Mahindra, which initially showed interest in entering the sector, didn't apply, citing "disadvantageous" and unclear norms.

Public sector entities India Post and IFCI and the private sector Anil Ambani Group, Aditya Birla group and Bajaj Finserv submitted their applications on July 1.

RBI Governor Raghuram Rajan had said he hopes to announce the new bank licences within, or soon after, the term of Deputy Governor Anand Sinha, which expires next month. Sinha has been shepherding the process.

During the year, allegations of money laundering were levelled by news portal Cobrapost against three leading private sector lenders -- ICICI Bank, HDFC Bank and Axis Bank -- prompting the Reserve Bank to initiate an enquiry.

In its second expose, the portal accused 23 leading banks and insurance firms of "running a nationwide money-laundering racket, blatantly violating laws of the land."

The entities named in the expose included State Bank of India, LIC, Punjab National Bank, Bank of Baroda, Canara Bank, Reliance Life, Tata AIA, Yes Bank, Indian Bank, Indian Overseas Bank, IDBI Bank, Oriental Bank of Commerce, Dena Bank, Corporation Bank, Allahabad Bank, Central Bank of India, Dhanlaxmi Bank, Federal Bank, DCB Bank and Birla Sun Life.

The portal alleged the financial entities offered to open bank accounts and lockers without following Know Your Customer (KYC) norms, convert black money into white and obtain fictitious PAN cards.

After investigations, Rs 49.5 crore of fines were imposed on 22 banks, including SBI, PNB and Yes Bank, for violating KYC or anti-money laundering norms. Cautionary letters were issued to seven, including Citibank and Stanchart.

During the year, banks, especially public sector lenders, continued to grapple with rising non-performing assets (NPAs), which were flagged by the government and the RBI to bank heads on several occasions.

In September, the gross NPAs of all banks crossed 4 per cent of total advances. They had risen to Rs 2.37 lakh crore from Rs 1.83 lakh crore in March 2013.

Public sector banks alone had gross NPAs of Rs 2.03 lakh crore at the end of September. The SBI group had accumulated gross bad loans of Rs 76,162 crore.

The top 30 bad loan accounts of public sector banks accounted for more than one-third of their gross NPAs.

"The ratio of top 30 NPAs as a percentage of gross NPAs, in respect of public sector banks, as on September 2013 is 35.5 per cent and for all banks it is 38.8 per cent," Finance Minister P Chidambaram had said.

The gross NPA amount of the top 30 accounts of public sector banks stood at Rs 72,174 crore, while for all banks it was Rs 91,667 crore at the end of September.

In the case of nationalised banks, the top 30 bad loans contributed 43.8 per cent to gross NPAs with Rs 55,663 crore. Blaming state-run lenders for the high level of NPAs, Chidambaram had said bank boards, and not the government, should be held responsible for the situation.

"If the bank boards cannot perform their duty, blame should stop with the bank boards and not with the government," he had said.

To curb NPAs, the government advised banks to take a slew of new initiatives, including appointment of nodal officers for recovery, special drives for recovery of loss assets and setting up of a board-level committee to monitor recovery.

Besides, the RBI has proposed measures to provide lenders incentives for early identification of problem cases, timely restructuring of accounts that are considered viable and taking prompt steps for recovery or sale of unviable accounts.

It also proposed penalising borrowers with higher interest rates for future loans if they do not cooperate in resolution.

As per a recent RBI discussion paper, to improve the restructuring process, independent evaluation of large value restructuring is mandated with a focus on viable plans and fair sharing of losses between promoters and creditors.

To protect the interests of customers, the RBI banned zero per cent interest rate schemes for purchase of consumer goods through credit cards. No additional charges can be levied on debit card payments.

The RBI directed banks not to impose a fixed fee for sending transaction SMS alerts to customers.

"With a view to ensuring reasonableness and equity in the charges levied by banks for sending SMS alerts to customers, banks are advised to leverage the technology available with them and the telecom service providers to ensure that such charges are levied on all customers on actual usage basis," the RBI said.

How to tackle the pile of bad loans

RBI wants banks to act fast and decisively in tackling bad loans. Photo: Pradeep Gaur/ Mint

Tamal Bandyopadhyay :Live mint:22 Dec 2013

One hopes that RBI can break the cosy relationship that bankers and corporate borrowers have developed on treatment of bad loans

Now that the Reserve Bank of India (RBI) is pushing for an early recognition

 of financial distress and prompt steps for resolution and recovery of bad 

assets, will analysts rush to re-rate public sector banks that have the

 highest pile of bad loans? It’s unlikely to happen soon as the proposed 

norms deal with new bad loans and not the stock and do not give any 

handle to bankers to address issues on which they have no control. 

For instance, infrastructure firms that have been badly hit by project delays constitute a large chunk of bad loans. About 215 projects worth Rs.7 trillion have been held up, according to a finance ministry estimate. Indeed the government has initiated steps to speed up the process but progress has been slow. The RBI norms can help bank refrain from restructuring aKingfisher Airlines exposure, but bankers can do little when projects are stuck because of delays in getting clearances from various agencies and loans are turning bad.

RBI wants banks to act fast and decisively in tackling bad loans. It plans to set up a central repository of information on large loans to collect, store and disseminate to date. The repository will have data on all loan accounts worth Rs.5 crore and above. Both banks and large non-banking companies will contribute credit information to the repository. This database will come in handy for the proposed joint lenders’ forum, which RBI wants the banks to set up. The platform will be particularly helpful for multiple banking arrangements. Unlike consortium lending, where all lenders are on the same page, in multiple banking, a rogue borrower can take the lenders for a ride as terms and conditions of different exposures could be different. Another critical aspect of RBI’s discussion paper of bad loan resolution—which will come into effect in January—is the formation of an independent evaluation committee that will vet all loan restricting of Rs.500 crore and above prepared by the corporate debt restructuring (CDR) cell. The India Banks’ Association, a bankers’ lobby, will set up the evaluation committee in consultation with RBI.

Overall, RBI wants to give incentives to banks for their promptness to spot a bad loan and initiate the recovery process fast and penalize them for their callous approach by making them set aside more money to take care of the pile of bad assets. Corporate borrowers will need to have more skin in the game. The victims of a slowing economy will be treated with dignity but wilful defaulters will have no place to hide. Finally, asset reconstruction companies will be encouraged to play a more active role and private equity funds may get an opportunity for leveraged buyouts of stressed assets.

RBI has been progressively tightening the rules for loan recasts to prevent misuse of the facility by companies. For instance, in May, the central bank had said promoters must provide a personal guarantee in all cases of restructuring and a corporate guarantee could not be accepted as a substitute for a personal one. Promoters also had to bring in a minimum of 20% of the loan amount that a bank would forgo in such a recast, or 2% of the total restructured debt, whichever is higher.

For restructured loans on their books in May, banks needed to increase provisions to 3.5% of restructured loan value with effect from 31 March and 4.25% with effect from 31 March 2015. One year after that, effective 31 March 2016, all provisions on restructured loans would increase to 5%. For loans restructured after 1 June, the provision was increased to 5% of the loan amount. The new norms will jack up the provision requirement manifold in cases where banks are found sleeping over their bad loan pile.

The gross bad assets of all listed banks rose close to 37% in the September quarter from a year earlier to Rs.2.29 trillion from Rs.1.67 trillion. Even after setting aside money, their net bad assets were up close to 51%—from Rs.85,000 crore to Rs.1.28 trillion. On top of this, banks have restructured some Rs.2.72 trillion loans through the CDR platform. This, however, does not include those loans that have been restructured bilaterally. The collective amount of such loans could be as much as the loans restructured at the CDR cell. That we have not seen the worst of bad loans as yet is evident from the fact that in October restructuring cases worth Rs.22,000 crore were referred to the CDR forum after Indian banks added an identical amount to the restructured loan pile in the three months ended 30 September. In the June quarter, aboutRs.20,000 crore of loans were recast and in March quarter, another Rs.15,000 crore.

One hopes that RBI is able to break the cosy relationship that bankers and their corporate borrowers have developed over the years on treatment of bad loans and loan recasts, as both sides benefit from such arrangements. While corporations ensure an uninterrupted flow of money, banks manage to make their balance sheets look healthy. On top of this, most government-owned banks lack both credit appraisal and monitoring expertise. Short tenure of the chairmen of state-run banks, which account for about 70% of banking assets in India, also contributes to this. Typically, a chairman with a two-year tenure spends his first year in cleaning up the balance sheet by identifying all bad assets and setting aside money for them, but the second year is spent hiding such assets as every boss wants to retire on a happy note. Unless these issues are addressed, it’s not easy to tackle the menace of bad loans, particularly when the economy is not in the pink of health.

Tamal Bandyopadhyay keeps a close eye on everything banking from his perch as Mint’s deputy managing editor in Mumbai. He is also the author of A Bank for the Buck, a book on HDFC Bank.