Low growth, tardy legal system impeding NPA fight: Kotak

Even as bad assets mount, banker Uday Kotak has said legal tangles and sluggish economic growth are making asset quality resolution a tough job for lenders, and termed the Reserve Bank of India (RBI)’s asset quality review as a “small subset” of the stress that exists in the system.

“The problem is once a loan gets into problems, the recovery process is much longer than earlier. It is not happening as fast as one would like it to. If one goes into the ditch, getting out of that ditch is much tougher than before,” Kotak, vice-chairman and managing director of Kotak Mahindra Bank, said.

Kotak said both debt recovery tribunals and debt recovery appellate tribunals are “bottlenecks” that take time.

Elaborating on the reasons as to why it is taking longer for a recovery, the bank’s Joint Managing Director Dipak Gupta said the legal process, along with the slowdown in growth and the global demand weakness were the root causes.

“The legal process is taking longer, the economy is not looking great. For some of these people (stressed assets), to rehabilitate and start working all over again, you need the general economy to be better. I don’t think that is happening, that is taking time. The problem is much more global. It is taking time for recovery,” he said.

“I think from where we had expected in the beginning, it is taking longer (for recovery),” Gupta said, adding it wasn’t going to be an easy job for the lenders.

The comments are interesting as they come days ahead of the second anniversary of the Modi government, that has been boasting of a gross domestic product (GDP) growth rate of 7.6 per cent under a new calculation method of GVA (gross value addition) as most other parameters of growth like core sector growth, IIP numbers and exports have all been giving contrary signals about the health of the economy.

Kotak Mahindra and associates are significant shareholders in Business Standard Private Ltd