New Delhi, Jul 25: State Bank of India (SBI) expects to recover 50 percent of the stressed assets from the Reserve Bank of India’s (RBI’s) first list of 12 large bad loan accounts that were identified for bankruptcy.
The lender hopes to recover 35 percent of the loans from the second list of bad loans, SBI chairman Rajnish Kumar said in an interview.
“The recoveries will be around 50 percent and most banks are holding provisions in excess of 50 percent. It may differ from bank to bank, but at SBI, our estimate is that we will be able to write back part of the provisions if everything goes well,” Kumar said.
Kumar expects the recoveries to be in the range of 30-35 percent in the case of the 28 bad accounts that were subsequently identified by the RBI for resolution. The state-owned bank will be able to write back some provisions as it has already set aside money to cover 76 percent of these NPAs. This will, in turn, add to its profit.
All the bad loan accounts listed by the RBI, except one, are in various stages of resolution at different benches of the National Company Law Tribunal (NCLT). These NPAs accounted for nearly 25 percent of the then Rs 8,000 crore bad assets.
With respect to rising NPAs, Kumar believes that the bad loan recognition process is over. Every year, the banking system will add fresh NPAs, but they will be “within the tolerance level”. The current credit cost will also be “within the tolerance level and will progressively reduce”, Kumar said.
The SBI chairman said overdependence on government regulations and under-recoveries from end-consumers are the chief reasons for the massive debt pile-up in India’s “regulated” sectors. Kumar also held bankers responsible for poor underwriting and risk management.
“For regulated sectors, I would say external factors are 70 percent responsible for the bad loans and internal factors (banks’ inability to appreciate risks) 30 percent. For other sectors, it would be 50:50,” Kumar said, adding that the appraisal and underwriting standards are undergoing a huge change.
Stating that the IBC is one of the most significant reforms that has been carried out by the government, Kumar said its implementation should be left to the commercial decision of lenders on what approach they want to take.
In the case of distressed firms in the engineering, procurement and construction sectors, he suggested an arrangement with the existing borrowers to complete the projects.