Govt banks writing off more loans than they recover

FinMin identifies 17 lenders who wrote off Rs 11,000 cr loan vis-a0vis Rs 4,000 cr recovery in Q4

Public sector banks are writing off more loans than they recover, despite repeated advisories from the finance ministry. In the fourth quarter of the last financial year, of the 26 state-run lenders, as many as 17 banks had written off more loans than they recovered.

The write-off by these 17 banks in the January-March quarter of 2012-13 was higher than the write-off by all the 26 public sector banks in 2011-12.

According to data compiled by the finance ministry, 17 public sector banks, including big lenders like State Bank of India, Bank of Baroda and Punjab National Bank, had written off loans worth Rs 10,777 crore in January-March quarter, while the recovery was Rs 4,172 crore during this period. During 2011-12, public sector banks wrote off loans worth Rs 2,300 crore, while the recovery was Rs 47,800 crore. The issue has alarmed the finance ministry, which in a note to the banks, highlighted the practice and reminded them the issue was raised as early as July 2006 and was reiterated in March this year. The issue was raised during a meeting of bankers with Finance Minister P Chidambaram on Wednesday. (ASSETS CONCERN)

To address the problem of rising non-performing assets (NPAs), Chidambaram had said banks “must recover higher than what they write-off in a year.” A loan is written off after making 100 per cent provision, which hits bank’s profitability. However, this also helps banks to show lower gross NPAs. Banks, particularly the government-run ones, are facing headwinds as far as asset quality is concerned amid economic slowdown. Not only gross and net NPAs of public sector banks are higher than that of their private sector counterparts but these banks also share higher burden on restructured loans.

The finance ministry has asked banks to initiate penal measures against wilful defaulters. The measures may include not granting additional facilities to such defaulters, debarring entrepreneurs/promoters of defaulting companies from institutional finance from floating new ventures for a period of five years.

The government also asked the banks to strengthen the recovery management and to have a board-approved policy on recovery. Banks have been asked to put in place an effective mechanism for information sharing for sanction of loans to new or existing borrowers.

In addition, banks were told to constitute a board-level committee for monitoring of recovery. Further, banks have been asked to lodge formal complaints against the auditors of such borrowers, if it is observed that the auditors were negligent or deficient in conducting the audit. Chidambaram has asked banks to focus on top 30 NPAs and take action against defaulters, as these account for bulk of the bad loans. Gross NPAs of public sector banks stood at 3.78 per cent of their advances at the end of March 2013 against 2.32 per cent at the end of March 2011. Gross NPAs of the country’s largest lender, State Bank of India, were at 5.17 per cent at March-end 2013.

The three legal options available to banks for resolution of NPAs/recovery of loans are: the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Sarfaesi Act, 2002), Debt Recovery Tribunals and Lok Adalats.