Banks' bad loan recoveries up

The upturn in the economy has helped banks improve recoveries of bad loans by 12 to 30 per cent in 2004-05.

Interestingly, bankers said the improvement was less on account of the legal amendments to the Securitisation and Reconstruction of Financial Assets & Enforcement of Security Interests Act 2002, (Sarfesi Act) and more due to a willingness among corporate borrowers to pay up, stemming from much better cash flows.

"We are seeing recoveries across all sectors," said a senior State Bank of India (SBI) official.

SBI recovered Rs 1,812 crore in the financial year 2004-05. In addition in fiscal 2005, SBI also salvaged Rs 700 crore from written-off accounts, which have been added to the bank's bottomline. The recovery from written-off accounts in the preceding fiscal 2003-04 was lower at Rs 450 crore.

In April 2004, the Supreme Court upheld the constitutional validity of the Sarfesi Act and empowered banks to sell assets seized with the powers of the Act.

However, one year down the line, bankers feel it is the economic upturn that has aided recoveries. "The Act serves the purpose of a good threatening tool and brings several borrowers to the negotiating table," said a Union Bank of India official.

Financial year 2004-05 failed to live up to the expectations of certain consulting firms which had predicted recoveries to the tune of Rs 15,000 crore.

Bankers today observe that the Act has helped to recover mostly small loan accounts running into a few crores. Legal tangles and the slow processing of cases by short-staffed debt recovery tribunals (DRTs) across the country still aid the big borrower from paying up.

Punjab National Bank posted a 20 per cent increase in cash recovery from bad loans at Rs 765 crore in fiscal 2004-05 up from Rs 638 crore in the previous year. The Delhi-based bank sent out about 8,000 notices under the Sarfesi Act.

"Empowered with the Act, even small cases of below Rs 1 crore with a house attached allows us to make recoveries. We have over 400 cases below Rs 1 crore," said a general manager of Punjab National Bank.