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FinMin asks PSU banks to be in hot pursuit of bad loans

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FinMin asks PSU banks to be in hot pursuit of bad loans
The finance ministry has directed state-run banks to set up a separate stressed asset management and recovery team that will be responsible for stringent recovery follow-up. While most top public sector banks already have set up teams to manage bad loans, market watchers believe that the finance ministry's directive will push midsized and small PSU banks to take bad loan recovery seriously.
"Most state-run banks already have stressed asset management teams who only focus on recovery from such assets but, yes, we agree that a focused approach is required and the government push should help in bringing in that discipline among lenders," a PSU bank official said on condition of anonymity.
Experts also said a separate vertical for managing bad loans would accelerate resolution of the bad loans mess and help recovery, which could lead to write back of provisions in the next two years, boosting profits."These are directionally positive reforms that not only focus on propping up banks but also on speeding up recovery from bad loans," said Siddharth Purohit, research analyst with SMC Institutional Equities. "This move will also allow banks to reach a position where they will be able to raise further capital of their own in the future," he said.
Many Indian banks are burdened with bad loans, which added up to about Rs 8.4 lakh crore at the end of September 2017. State-run banks dominate this segment and had to set aside large amounts of money to face any losses. In 2016-17, state-run banks together lost Rs 18,066 crore.
Bad loan recovery for banks has been rather dismal so far. Banking sector data shows that the country's top six state-run lenders could recover only Rs 7,446 crore from bad loans in the three months to end of September 2017, down from Rs 9,532 crore in the preceding quarter. The drop was more from September 2016 quarter when recovery stood at Rs 12,020 crore.
The Economic Times, New Delhi, 25th January 2018

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