Small public sector banks in drive to shed corporate and big biz loans

The government has asked small public sector banks (PSBs) to reduce corporate loan exposure but many of them are under a Prompt Corrective Action (PCA) plan and already at work to sell bigsize bad loans, limit further exposure and trim the loan book through securitisation.

Top PSB executives said the government had asked for a cut in corporate and big business loans by at least 15 per cent by March 2019, as part of its recapitalisation plan. However, the process of parting with corporate loans and a virtual halt to further exposure has been on since the early part of this financial year, when the Reserve Bank began to place PSBs under a PCA.    

Beside stepping up recovery, sale of non-performing assets, especially big exposure, is top on the agenda. Similarly, banks would engage in sale of performing loans through securitisation and assignment (direct sale), said a head of corporate credit with a Mumbai-based PSB. 

Bankers caution that this would be a lengthy affair and cutting of corporate exposure by at least 15 per cent by March 2019 was very tough.

Kolkata-based UCO Bank has over the past year reduced its corporate loan exposure by five to six per cent, said R K Takkar, chairman. At present, corporate debt is 55 per cent of the loan book.

Another Kolkata-based bank, United Bank of India, has also been refocusing on retail (small borrower) and micro, small and medium enterprise lending, while reducing exposure to corporate lending, the latter a  third of its loan book.  

United Bank of India was one of the first PSBs to be subject to a PCA, in 2014. Earlier, the bank was not allowed to give a loan more than Rs 100 million to a single borrower. Last month, it wase again subjected to PCA. While the RBI did not put any restriction on loan size, the bank as a matter of policy had almost stopped giving bigsize loans, said an official.

A senior executive with Chennai-based Indian Overseas Bank (IOB) said the Joint Lenders Forum was created so that decisions could be faster and monitoring easier. Ultimately, banks with less than 10 per cent share will pass this on to other members in the consortium. As a result,  corporate exposure of the smaller banks gets reduced.

IOB’s corporate exposure was about 50 per cent a few quarters earlier; it is now 42 per cent and work is on to curt this to 40 per cent. The bank will selectively take exposure to top-rated corporates. “We will focus on AA & AA- rated ones, where risks are less,” an IOB official added.

Decoding The Plan

•  Limiting further exposure
• Sale of stressed assets
• Recoveries from loans using one time settlement
• Sale of loans through securitisation or assignment