Amid a tough macroeconomic environment, which has kept asset quality under pressure, banks are stepping up efforts to recover as much money as they can. A look at the results for the three months to December 2013 shows that most public sector banks have managed to recover money primarily through the sale of bad loans to asset reconstruction companies (ARCs).
The Delhi-headquartered Punjab National Bank (PNB) had the highest cash recoveries in Q3FY14 of Rs 2,107 crore, an increase of over 40% both sequentially and year-on-year. Similarly, Bank of Baroda’s recoveries increased 93.14% y-o-y to Rs 197 crore. Apart from selling of bad assets to ARCs, Bank of India and Central Bank of India have set up committees to oversee and follow up on wilful defaulters on a weekly basis as part of their recovery efforts.
Bank of India CMD VR Iyer told FE that the bank is strengthening monitoring and recovery efforts. "We are taking very strong action against wilful defaulters and also resorting to the sale of assets to ARCs,” Iyer said. Recoveries at BoI increased 174.25% y-o-y and 134.98% sequentially to Rs 1,001 crore in Q3FY14.
Iyer added that the bank is using a call centre and correspondents to follow up on borrowers, which has boosted recovery efforts. “In fact, our call centre makes about 700 calls per day to our borrowers across the country. This has doubled our recovery. Going forward, I think this will be a very important tool,” she said.
Bank of Baroda CMD SS Mundra said the bank is in the NPA formation phase so far and would soon enter the phase of reversal or upgradation. “The reduction in NPAs will really start after that and this year we may assess the possibility of selling some bad loans,” he added.
Experts also feel that banks are well collateralised in the form of property or machinery, which compels borrowers to settle their dues rather than default. “The prices of the collateral have generally been stable. There is a strong incentive for corporate borrowers to come and settle their dues with banks. This could be pushing recoveries up in banks,” said Ananda Bhoumik, senior director, India Ratings.
However, most banks agreed that there were still concerns regarding asset quality and they may have to restructure more loans. ICICI Bank, the country’s largest private sector lender, said that it has a restructuring pipeline of Rs 3,000