PSBs' stress level down with better recoveries

Large public sector banks (PSBs) have shown substantial improvement in loan recoveries and upgrade of accounts under stress in the first nine months (April-December) of the current financial year over the same period last year.

This does, said bankers, give them confidence on follow-up action. However, they added, banks would remain hobbled by big-ticket stressed accounts and without resolution of the latter, no meaningful change can come to the asset quality profile.

Seven large PSBs - including State Bank of India, Punjab National Bank (PNB) and Bank of Baroda (BoB), the largest three - showed between 40 per cent and 136 per cent growth in recoveries from stressed loans in April-December over a year before. Only Canara Bank was an exception, with a 23 per cent decline in this. Total recoveries for the seven banks grew 59 per cent to Rs 25,639 crore.

These recoveries and upgrades are predominantly from retail (meaning, individual borrowers), small & medium enterprises and agriculture, and a one-off large corporate account. Repayments from large units remains a challenge.

Union Bank of India chairman Arun Tiwari said the trend of improvement across banks was the outcome of systematic follow-up over 18-24 months.

The sector would show a better performance for recoveries in the coming quarters. Seconding Tiwari's view, a senior BoB executive said the Reserve Bank of India's Asset Quality Review exercise forced them to recognise the extent of true stress.

The pressure on loan books, public opinion and better coordination among lenders, especially on companies, has begun to give results. Delhi-based PNB saw cash recovery and upgrades in the nine months of Rs 14,724 crore. The target for the full year is Rs 20,000 crore.

Recoveries were hit in the aftermath of demonetisation, as banks were caught in the work of currency withdrawal and dispensing money across the branch network.

A review of 38 banks for slippage (accounts falling into the non-performing asset category) in the December (third) quarter showed the pace had moderated over the earlier, second, quarter. Slippage was Rs 26,373 crore in Q3, down from Rs 41,234 crore in Q2 and Rs 51,245 crore in Q1 of FY17.

Provisions and contingencies in Q3, down from Rs 46,785 crore in Q2.

Illustration Ajay Mohanty