Recovery of Indian banks improved in 2017-18 after the implementation of the Insolvency and Bankruptcy Code (IBC) and amendment of the Sarfaesi Act, according to the Trends and Progress Report released on Friday.
The central bank corrected data for the IBC recovery on Saturday morning. Earlier, the data showed that recovery under IBC had been huge and much more than other modes of recovery, but the updated data showed that the recovery under IBC was much smaller.
For the 701 cases admitted under the National Company Law Tribunals (NCLT), and claims admitted on 21 accounts for an amount of Rs 99 billion, the recovery has been Rs 49 billion, indicating a haircut of about 50 per cent.
With Lok Adalats, 3,317,897 cases yielded just Rs 18 billion, and in the case of the debt recovery tribunal, for 29,551 cases referred in 2017-18, the recovery has been Rs 72 billion. In Sarfaesi, cases referred have been 91,330, of which recovery done was to the tune of Rs 265 billion.
"Apart from vigorous efforts by banks for speedier recovery, amending the Sarfaesi Act to bring in a provision of three months' imprisonment in case the borrower does not provide asset details and for the lender to get possession of mortgaged property within 30 days, may have contributed to better recovery," the report said.
The non-performing asset (NPA) pile up happened because of a credit boom between 2006 and 2011. "The deterioration in asset quality of Indian banks, especially public sector banks (PSBs), can be traced to the credit boom of 2006-2011 when bank lending grew at an average rate of over 20 per cent. Other factors that contributed to the deterioration in asset quality were lax credit appraisal and post-sanction monitoring standards; project delays and cost overruns; and absence of a strong bankruptcy regime until May 2016," the report said.
In 2017-18, the gross NPA ratio of all scheduled commercial banks reached 11.2 per cent of the gross advances, up from 9.3 per cent a year ago. PSBs, which account for nearly 70 per cent of the advances, saw gross NPA ratios rising to 14.6 per cent "due to restructured advances slipping into NPAs and better NPA recognition".
For private sector banks, NPA ratios were at little higher than 4 per cent, and for foreign banks, the gross NPA ratio was at less than 4 per cent. The resolution of large NPA accounts under IBC helped improve the NPA ratios in the year, the report said.
"In terms of the net NPA ratio, PSBs experienced significant deterioration during 2017-18. During the year, the share of doubtful advances in total GNPAs increased sizably, driven up by PSBs. The share of sub-standard and loss assets in GNPAs of private banks declined."
Efforts on the part of private banks to clean up their balance sheets through higher write-offs and better recoveries contributed to low GNPA ratios in these banks, the report said. Slippages, or good loans turning bad, increased in public sector banks largely "attributable to restructured advances slipping into NPAs and a decline in standard advances". However, slippages in private banks moderated.
During 2017-18, the GNPA ratio of PSBs increased to 23.1 per cent from 18.1 per cent in the previous year. Private banks witnessed a similar trend, especially after the implementation of the revised framework of resolution of stressed assets from February 12.
Asset quality in the industrial sector deteriorated mainly with better recognition. The agricultural sector posted a rise in bad debt mainly because of farm debt waivers, it said.
One-fourth of loans to large industries turned into NPAs by the end of March 2018.
Medium-sized industries underwent improvement in loan quality during 2017-18 but showed pressure on asset quality in the first half of 2018-19.
The gems and jewellery sector faced a significant increase in GNPAs during 2017-18 with the unearthing of frauds, but the cement sector NPAs moderated significantly, with the resolution of some stressed accounts and an uptick in financial performance.
Basic metals and metal products remained highly leveraged, but the proportion of bad loans declined in the first half of the current financial year due to resolutions in the steel sector.