Bankers said the recovery process is slow and takes times because of several issues including legacy, legal hurdles and pricing mismatch in loans being sold to asset reconstruction companies (ARCs). However, this doesn’t translate to a lack of insufficient work being done by banks.
A senior Bank of Baroda executive said banks, especially public sector lenders, have been working hard on recoveries over the past 18 months. “The pace of resolution remains slow because of lengthy legal process for action against defaulters, especially those with resources, but who use every tactic to avoid payments. As for sale of non-performing assets (NPAs) to ARCs, banks employees are afraid that decision about pricing would be questioned endlessly by various agencies (such as the Comptroller and Auditor General, Central Vigilance Commissioner, and the Central Bureau of Investigation). They do not want get entangled in legal battles after retirement,” said the official, requesting anonymity.
Rai had said banks are not making enough progress on NPAs and they are to be blamed as the Reserve Bank of India and the Centre have created a conducive environment, but the lenders haven’t done enough.
A State Bank of India executive strongly refuted Rai’s allegation and said it was incorrect to say banks have not done enough. “There is definitely change in attitude now and many new legal provisions have given more teeth for taking action against defaulters, especially big-ticket units,” he added.
Gross NPAs of public sector banks (PSBs) have risen from Rs 5.02 lakh crore in March to Rs 5.59 lakh crore in June. According to the financial stability report, gross NPAs had increased to 7.6 per cent at the end of the quarter ended March from 5.1 per cent in the September quarter.
However, former RBI governor Raghuram Rajan had lauded banks in one of his speeches in August saying the central bank was comfortable with the NPA clean-up and banks had taken a lot of steps in the right direction.
RBI had also acknowledged that the rate of addition to bad loans has reduced, which was another positive as on the other hand recovery has picked up.