In FY17, banks went easier on defaulters

Bad-loan suits drop after rising sharply in the preceding 2 years

While the RBI has been pushing for an action plan to implement the NPA (non-performing asset) ordinance, banks have been somewhat lax in taking legal recourse to recover bad loans.

According to data published by Credit Information Bureau of (India), of the 9,500-odd cases filed by banks and financial institutions, in the case of loans above ₹1 crore, defaulters owed banks about ₹1.5 lakh crore as of March 2017, which is 9 per cent lower than the amount in the previous year.

As of March 2016, banks had filed around 11,500 cases on ₹1.7 lakh crore worth of outstanding loans. The decline follows the sharp increase in suits filed in the preceding two years.

Banks that normally file a suit as a last resort for recovery took this route more often between 2014 and 2016. As of March 2015, bad-loan suits had shot up 68 per cent (in value) over the previous year, followed by a further 47 per cent in March 2016. Banks and financial institutions submit the list of suit-filed accounts of ₹1 crore and above, and quarterly updates to CIBIL as well as the RBI. According to a few bankers, there are three key reasons for the drop in suits filed: one, banks have been increasingly selling their bad loans to asset reconstruction companies (ARCs). As such sales immediately take the bad loan off the banks’ books, these cases may not appear in CIBIL records. In 2016-17 banks sold bad loans worth ₹40,000 crore to ARCs, against ₹20,000 crore sold in 2015-16.

A few bankers also believe that in some cases filed in the past, banks might have reached a one-time settlement with borrowers.

Also, with the RBI rolling out new tools for restructuring loans and dealing with NPAs — Strategic Debt Restructuring and Scheme for Sustainable Structuring of Stressed Assets — it is likely that banks did not file as many fresh cases as in the past. “Banks have been awaiting clarification on various guidelines from the RBI regarding NPAs over the past year. Also, expectations ran high on some relief from the Centre and the RBI on the bad loans front. This could have kept banks from taking legal recourse to recover bad loans,” says Nirmal Gangwal, Managing Director, Brescon Corporate Advisors, a corporate debt restructuring advisory firm.

Also, he believes that given the uncertainty in the banking system, decision-making has slowed.

“Weak finances of banks could be another reason. Filing cases to recover bad loans would require banks to make higher provisioning, depending on the assessment of the underlying collateral,” adds Gangwal.

Top borrowers

As of March 2017, the top 20 borrowers owed banks about ₹13,600 crore.

Hukumchand Mills tops the list, owing around ₹1,700 crore to largest lender SBI. This is followed by Etisalat DB Telecom, Kingfisher Airlines, KS Oils, JC Mills and VMC Systems, among others.

Many of the defaulters in the CIBIL list have been featuring time and again over the last two to three years. Kingfisher Airlines, Etisalat DB Telecom and Deccan Chronicle are a few names that have been in the list since March 2014. In many cases, borrowers have defaulted across lenders. SBI, Kotak Mahindra Bank and IFCI are lenders that have filed cases against Hukumchand Mills, for total dues of about ₹1,750 crore.

Etisalat DB Telecom (₹2,273 crore), Kingfisher Airlines (₹1,633 crore), Deccan Chronicle Holdings (₹760 crore), and REI Agro (₹2,725 crore) are among other big-ticket listed names against whom multiple lenders have filed suits.

LIC too

Aside from banks, a few financial institutions have also filed cases. The Specified Undertaking of Unit Trust of India (SUUTI), for instance, has filed 90-odd cases against defaulters, who owed it about ₹1,280 crore as of March 2017.

As of December 2016, LIC, too, had filed 30-odd cases against defaulters, who owed the insurer about ₹3,340 crore. Deccan Chronicle, Hamco Mining and Smelting, Punjab Wireless, Tulip Telecom and REI Agro were some of its top defaulters.

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