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Bad loans crisis: Banks are rushing to courts to get defaulters to pay up

Number of suits filed by banks against willful defaulters has more than doubled since December 2013

Mayank Jain | Scroll.in 

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India Ratings expects another Rs 2.6 lakh crores to slip into bad debts in the next year or so

India’s problem is much bigger than Public sector have a tough task at hand recovering money tied up in non-performing loans, according to the latest data. Even as Indian authorities seem intent on bringing back the entrepreneur from the United Kingdom, where he fled to in March 2016, and make him pay the Rs 9,000 crores in he owes multiple banks, a large number of public sector are now approaching courts to obtain recovery notices against defaulting companies.

Data analysed by Scroll.in showed that the number of suits filed by against willful defaulters has more than doubled since December 2013, when then Reserve Bank of Governor Raghuram Rajan had pushed for a clean-up of the bank As of March this year, there were 8,215 cases pending in courts for willful defaults amounting to Rs 1 lakh crore. More than 83 per cent of these cases were filed by public sector – their numbers have steadily risen from 3,500 cases in March 2014 to close to 7,000 cases in March 2017, according to the Credit Information Bureau of India’s data.

However, this is not the complete story of India’s problem. The proportion of cases in which have moved court is tiny compared to the total declared non-performing assets, which stood at Rs Rs 7.6 lakh crores this March.

Since then, the Reserve Bank has forced to report actual as assessed by the central bank, which has brought a huge divergence to light. For instance, Yes Bank, the country’s seventh-largest lender,under-reported its by 557.6 per cent in its annual report last year.

What this means is that more than anticipated are turning bad. Ratings expects another Rs 2.6 lakh crores to slip into in the next year or so, the rating agency said in a release last month.

“As per Ind-Ra analysis Indian are sitting on unrecognised stressed worth of Rs 7.7 trillion,” the agency stated, adding that divergence revealed by recently will add to the pile of bad in the coming months.

Rush to recover

This is perhaps why public sector are hard-pressed to find a solution to the problem quickly. With more expected to turn bad at a time when the growth of bank lending is at its lowest in six decades, are going all out to recover whatever money they can.

The State Bank of India, which merged with its five associate on April 1, has filed more cases than all combined. The bank and its associates had filed 1,705 suits by March compared to 1,229 cases by all This could be because of the sheer size of the bank’s lending book in the country. However, Pallav Mohapatra, deputy managing director of the State Bank of India’s management group, insisted the bank’s was healthy and its non-performing assets, at 6.4 per cent, were below the sector average of 9.3 per cent.

However, it was also reported that post-merger, the of the five associate soared to 9.1 per cent at the end of the June quarter from 5.9 per cent in the March quarter.

Mohapatra reasoned that public sector banks, including the State Bank of India, have been forced to take hard measures since softer ones were not working well enough. Hard measures include and auctions while soft measures usually include offering a moratorium on

“It is not just because of the clean-up forced by the RBI,” Mohapatra said. “We are realising that if we cannot receive full amount on a Rs 100-loan, then we are taking Rs 60 and converting Rs 40 into equity hoping that it will turn around.”

A banking analyst, speaking on condition of anonymity, said public sector will be the ones most affected by bad as a result of leaky processes. “Their underwriting is not the best in the industry. Sometimes, many other considerations are put in place rather than fitness of the borrower, which has led to some of this bad debt pile,” the analyst said. “Otherwise too, public sector are now becoming proactive in filing cases as compared to their lethargy earlier, but have at least been watchful.”

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