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Improved recovery pace is good for bank's health
The common people are finding it difficult to resolve the issue of mounting Non-Performing Assets (NPAs) of banks, but due to the efforts of the government and the banks, positive results in this regard are reflecting.

On one hand, the government has been providing capital for various needs, for example, regulatory requirements i.e. BASEL-III and provision for NPA, on the other hand, new laws such as Insolvency and Bankruptcy Code (IBC) has been implemented for recovery of bad debt.

Gross NPA of all banks increased by 11.2 per cent in the financial year (FY) 2017-18, which is an amount Rs 10.39 lakh crore, in which the NPA of the public sector banks (PSUs) was Rs 8.95 lakh crore, in per cent terms that is 14.6. It is worth noting that in the FY 2016-17, the gross NPA of all the banks was 9.3 per cent, while the gross NPA of PSUs was 11.7 per cent.

The report, named "Trendz and Progress of Banking in 2017-18" released by the Reserve Bank of India, has said that the process of conversion of restructured loans into NPAs has been completed. Also, process of identifying the hidden NPAs has also been completed. In the FY 2017-18, the gross NPA & total debt ratio reached to 14.6 percent, while the net NPA & total debt ratio was 8 per cent, which was 6.9 percent a year ago. However, the proportion of gross bank debt of private banks was 4.7 per cent during the corresponding period, which was 4.1 per cent a year ago.

It is noteworthy that the new governor of central bank Mr. Shaktikant Das is not in mood to give any relaxations to the banks in this regard. He has clearly stated that an inadequate provision for NPA is fatal for the Banks. The Banks need sufficient capital for meet out the requirement of regulatory parameters & in the event of arising risk.

However, due to the revised guidelines of IBC, the pace of recovery has increased. Under this, 66 cases out of 1322 have been disposed of and Rs 80,000 crore has been recovered and by the end of March, it is estimated to recover Rs 70,000 crore. In this case, the percentage of recovery through IBC is more than 50, which is the best in other recovery mechanisms like Lok Adalat, DRT, the Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI Act) etc.

Percentage of recovery by Lok Adalats is 4, 5.4 by DRT and 25 by SARFAESI Act etc. It is worth mentioning that before going to NCALT, 4,452 cases of Rs.2.02 Lakh Cr. were settled. At the same time, in 260 cases, order was passed for selling of Mortgaged properties.

The NPA of public sector banks has reduced as well as the process of showing hidden NPA in balance sheet has been completed. In the first half of FY 2019, the NPA of Rs 23,860 crore has reduced. Restructured debt has also come down from 7 per cent in March 2017 to 0.59 per cent by September, 2018.

As per data of the Finance Ministry, due instalments and interest from 31 to 90 days, which has not yet been converted into NPA,  61 per cent reduction has been recorded in last five quarters, which was Rs 0.87 lakh crore in September, 2018, while in June, 2017, it was Rs 2.25 lakh crore. In the first half of the current financial year, the PSUs have made record recovery of Rs 60,726 crore, which is twice from the same period of last year. Provision Coverage Ratio (PCR) of public sector banks was 46.04 per cent in March 2015, which increased to 66.85 per cent by September 2018. This ratio tells about the ability to bear the loss. Clearly, the ability to bear the loss of PSUs has increased.

The government will soon put a capital of Rs 28,615 crore through recapitalization bonds in 7 public sector banks. With this amount, the bank will be able to meet its regulatory capital requirement. Out of these 7 PSUs, Bank of India will get the maximum Rs 10,086 crore. After this, Oriental Bank of Commerce will get Rs 5,500 crore and Bank of Maharashtra Rs 4,498 crore. UCO Bank will get Rs 3,056 crore and United Bank of India Rs 2,159 crore. Earlier, in the year 2018-19, the government had announced a capital infusion of Rs 65,000 crore in PSUs. Out of this, Rs 23,000 crore has been given to PSUs, while Rs 42,000 crore is still available to the banks.

According to finance minister Arun Jaitley, the government will pay Rs 41,000 crore more to PSUs, which will be different from the earlier declared amount. By providing capital to PSUs, at least two or three banks will come out of the Prompt Corrective Action (PCA) till March, 2019.

According to Finance Minister Arun Jaitley, this will increase the ability to lend of PSUs. The PCA is imposed on those banks which cannot follow certain important financial parameters. After being put into PCA, banks are banned to give loans and open new branches.

The result of the second quarter of the current financial year for PSUs was mixed. Some PSUs have come in profit in the second quarter, some are still in loss. State Bank of India earned a profit of Rs 945 crore in the second quarter. Canara Bank has been successful in earning a profit of Rs 300 crore in the second quarter.


However, the bank recovered Rs 1700 crore during this period, but most of the recovery went into the provisions made for NPAs.  Otherwise, the bank's profits would be high. Bank of Baroda has also performed better in the second quarter. According to an estimate, in the financial year 2019, the performance of PSUs will improve further.

In a statement made on December 31, by the Reserve Bank, banking sector is coming out of the NPAs trap and it has come down for the first time since 2015. The central bank said in its half-yearly financial sustainability report that the banking sector is returning to the track. However, the current level of NPAs is still quite high. It has been said in the report that the credit quality of the banks has improved. Their gross NPAs fell to 10.8 percent in September 2018, which was 11.5 percent in March 2018. By the way, the pressure is increasing in mining, food processing and construction sectors, though the banks are also trying to resolve this.

In the preface of this report, the new Governor of the Reserve Bank, Mr. Das, said that the banking sector is coming out from the pressure of the NPAs. After September, 2015, there is a positive sign of reduction of provision coverage ratio in proportion to the gross NPAs. According to Mr Das, banks have adequate cash and they can withstand any kind of pressure.

It seems that credit discipline has now been better followed in credit distribution, increased market risk and improved operating risk assessment. Further changes in IBC norms have helped in bringing discipline in the credit culture in the country.

In some cases, it takes a little longer than the time limit, but positive results are becoming visible in the course of time. According to Mr Das, the banking system is looking good right now, but the risk is still intact, which needs to be resolved in a planned manner to reduce it. It can be said that the efforts of the government and the banks have started to look at better results on the recovery of NPAs, which has led to the banking sector going forward. Clearly, with the strengthening of the banking sector, the probability of the economy getting even better will definitely increase.

About the author: Satish Singh is currently working as Chief Manager in State Bank of India's Economic Research Department, Corporate Centre, Mumbai, and has been writing mainly on financial and banking topics for the last 10 years.

Editorial NOTE: This article is categorized under Opinion Section. The views expressed in this article are solely those of the author and do not necessarily represent the views of In case you have a opposing view, please click here to share the same in the comments section.
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