Demonetisation Puts Brakes on Banks' Loan Recovery Efforts

BANKS LIKELY TO MISS THEIR TARGETS AS BAD LOANS CONTINUE TO PILE UP

TOUGH TIMES For the top 8 lenders, recoveries have fallen nearly a quarter between Q2 and Q3

Demonetisation has not only dampened banks' core business of lending, it has also hit them where it hurts -loan recovery. Recoveries from bad assets have fallen nearly a quarter among the top 8 lenders.

Banks, which had set lofty targets for loan recoveries at the start of the year after the Asset Quality Review exercise, are likely to miss their targets as bad loans continue to pile up. Top banks recovered . 7,909 crore from such loans at just ` the end of the December quarter against Rs.10,177 crore at the end of the September quarter.

These numbers are dismal, especially when compared with the quantum of dodgy loans banks have accumulated since December last year. Data compiled by ETIG shows that at the end of September 2015, banks' absolute gross non-performing assets stood at Rs. 3.50 lakh crore, which climbed by ` a staggering Rs.4.49 . 1 lakh crore to ` lakh crore in merely 3 months when the RBI announced the asset quality review exercise.

At the end of March last year, gross non-performing assets in 41 listed banks stood at ` . 5.91lakh crore. The country's largest lender State Bank of India showed reco veries of ` . 1003 crore against Rs.1344 crore, sequentially. For the 9month period of this financial year, the bank managed to recover only Rs.3,994 crore and upgraded accounts worth ` . 2434 crore.

“We were very hopeful of seeing most of the resolutions come in during this quarter. But demonetisation has actually pushed this by another quarter,“ said Arundhati Bhattacharya, chairman, State Bank of India.

For the country's largest private sector lender ICICI Bank, recoveries and upgrades slowed to Rs. 625 crore against Rs.800 crore, sequentially. It also managed to sell loans worth Rs.87 crore to asset reconstruction companies. “We have always said that the re covery as well as the decision-making environment have been quite challenging -we continue to navigate the environment and press forward on all the resolutions,“ said NS Kannan, ED, ICICI Bank.

For Axis Bank, recoveries and upgrades nosedived to Rs. 350 crore compared with Rs.1073 crore quarter-on quarter, a fall of nearly 250%.

The ratio of gross non-performing advances of commercial banks rose to 9.1% from 7.8% between March and September 2016, pushing the overall stressed advances ratio to 12.3% from 11.5% at the end of March quarter. The quantum of special mention accounts-2 -accounts where the loan is overdue for 60 days or more -increased across bank groups, RBI data showed.

Another large PSU lender Punjab National Bank has recorded a slowdown in its recoveries from problem loans to ` . 2413 crore against `. 2883 crore quarter-on-quarter. The bank also upgraded loan accounts worth Rs.1534 crore.

Speaking to reporters after the earnings announcement, the chief of Punjab National Bank had said that the bank was comfortable with the pace of recovery. “We have been more or less in line with the guidance given of Rs.15,000 crore for three quarters and ` . 20,000 crore for the year as a whole,“ said Usha Ananthasubramanian, MD, Punjab National Bank. “What we need to very closely work on is the medium and small accounts which the grassroots are taking care of, reaching out to the borrowers and then, that is how Q4 will pan out for us.“

According to RBI's latest edition of the Financial Stability Report, PSU banks could only recover Rs.19,757 crore last fiscal year aga` inst Rs.27,849 crore in fiscal 2015.

Banks were saddled with more than Rs. 7.3 lakh crore in bad loans at the end of December 2016. This has led to a virtual freeze in lending activity with credit growth in low single digits for several state-run banks.

The Economic Times New Delhi,14th February 2017

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