Govt unhappy with PSBs' recovery record

Wants them to reach 70 per cent benchmark for provisions

Displeased with the performance of public sector banks (PSBs) in recovering dues during 2015-16, the government has asked lenders to "seriously" speed up efforts to get back money from defaulting borrowers.

Recovery efforts have not matched the exponential growth in gross non-performing assets (gross NPAs). Most recovery is coming from written-off accounts, which are increasing every year.

The total recovery by all PSBs was flat at Rs 1.28 lakh crore in 2015-16 against Rs 1.27 lakh crore in 2014-15, according to the finance ministry's communication to the chiefs of state-owned banks.

Within these recovered amounts, the share of written-off accounts has increased from 41 per cent in 2014-15 to 46 per cent in 2015-16.

Union Finance Minister Arun Jaitley is slated to review the performance of PSBs next Monday.

Bank executives said PSBs, which had over 70 per cent share of the outstanding loans of the system, had accorded priority to recovering dues from defaulters, especially corporate borrowers. However, their efforts met with limited success because of factors like low income growth and hurdles in legal action, they added.

The current financial year may be the turning point for recoveries with the passage of the bankruptcy code. The new regime, which vests more power in the hands of lenders, will help with swift action over defaulting accounts, according to bank executives.

Gross NPAs of PSBs grew from Rs 2.67 lakh crore (5.43 per cent of gross advances) in March 2015 to Rs 4.76 crore (9.32 per cent) in March 2016. The stressed assets (gross NPAs plus standard restructured assets) of PSBs grew to Rs 7.33 lakh crore in March 2016 from Rs 6.62 lakh crore a year ago.

Fresh slippages increased by as much as 118 per cent to Rs 3.90 lakh crore by the end of March 2016 from Rs 1.78 lakh crore in March 2015.

Analysts and bank executives said the asset quality review by the Reserve Bank of India for banks in 2015-16 had helped render a realistic assessment of stress in the system. This led to a sharp rise in provisions for NPAs, denting bank bottom lines at a time when interest income remained subdued.

Now banks face the challenge of net NPAs, bad loans for which provisions are yet to be made. That pool is also huge. The tally of net NPAs was Rs 3,39,000 crore at end of March 2016, according to data from Capitaline compiled by Business Standard Research Bureau.

Only 54 per cent of gross NPAs have been provided for against the RBI benchmark of 70 per cent. If more stressed assets slip into the NPA category, it will exert pressure on margins and will affect both profitability and capital adequacy, according to the finance ministry.

On May 20, RBI Deputy Governor SS Mundra had said banks should increase the provision coverage ratio to the 70 per cent level they were mandated to maintain earlier.

Banks were required to mandatorily maintain a provision coverage ratio of 70 per cent. But the mandate was withdrawn in September 2011 after most banks had met the criterion.