State-run banks speed up recovery efforts as NPAs pile up

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Following a steep rise in bad assets in the past two quarters, public sector banks are devising various ways to ramp up the recovery in the rest of the fiscal, such as setting up special recovery cells and aggressive follow-up of sticky accounts.

Some banks are even mulling offloading some of the non-performing assets to asset reconstruction companies in the fourth quarter, to clean up the balance sheets.

"We have a high focus on recovery. We have instructed teams of general managers to work towards this. In some cases, we are trying to recover the loan amounts through compromise settlements and one-time settlement schemes," Indian Overseas Bank chairman and managing director M Narendra told PTI.

The Chennai-based public sector lender, which recovered around Rs 600 crore in the first half, aims to recover around Rs 850 crore in the second half, the chairman said, adding that bank will open `asset recovery branches' soon.

Gross NPAs of listed banks crossed Rs 1 trillion by the end of the September quarter, a full 33 percent higher than a year ago, on the back of a hardening interest rate regime, slackening growth in some sectors like steel and mining, along with system recognition of bad assets.

Since March 2010, the Reserve Bank has upped short term interest rates by 525 basis points to 8.5 percent.

Most of the incremental addition of NPAs has happened in public sector banks, which control 75 percent of the system.

"Due to system recognition, the flexibility of classifying NPAs is no longer there. So, we start following up a sticky account after 60 days in case of possible defaults," Bangalore-based state-run lender Vijaya Bank's executive director, Subhalakshmi Panse, pointed out.

A standard asset turns a non-performing one if the borrower doesn't service the loan for 90 days together.

Panse also said a special department is taking care of the bank's recovery efforts now.

Vijaya Bank had a cash recovery of Rs 354 crore in the first half, while it upgraded Rs 890 crore worth of portfolio during the same period.

Referring to this, a top bank official of IDBI Bank said though his bank can't give a recovery target for the second half, it is looking at recovery on case to case basis.

"Our approach is case to case basis. While some of them are restructured, some are settled though compromise and in others we have to take legal route," IDBI Bank's executive director Rajkumar Bansal said.

Bankers also said they would take a call by December end whether to offload some of the bad assets to asset reconstruction companies (ARCs).

"We had offloaded around Rs 330 crore of bad assets last financial year to ARCs. Going forward, we will take a call about this," Narendra of IOB said.