Bad debt in India has reached a decade high, hitting US$49 billion. India’s state-owned banks are now under pressure and have started to take new measures to tackle this mountain of debt.
Banks are starting to name and shame smaller borrowers in public, some of them using TV screens in malls to advertise seized assets for sale. Some bank employees even went into the streets to protest with placards against these firms.
The economic slowdown only worsened India’s bad debt problem, which is mostly composed of corporate loans. Loose lending and banks’ failures to take necessary measures to go after rogue debtors are also big reasons for this.
Because of the government’s efforts to accelerate the economy, bank executives say they feel much more pressure on them. The central bank, pushing company owners to take a more active role in being responsible, has also made it tougher for Indian banks.
P.K Malhotra from the State Bank of India said that his team had received special training to face this situation. The training even includes classes like psychology. “The focus (is) on getting court cases expedited. Less on the paperwork and more on the fieldwork,” said Malhotra.
Executives say it’s too early to measure the overall success, but there have already been some wins for India’s bruised banks.
Suzlon Energy sold its German unit this year at 1 billion euros (US$1.1 billion), making a huge loss as this amount is less than what it had paid to purchase the asset in 2011. This was followed by banks stressing the company to cut its debt, which put the wind-energy company in a very tough position.
The State Bank of India (SBI) is leading more than 20 lenders who are looking for investors in Electrosteel Steels, which carries near US$1.4 billion in bank loans. Lender are getting more involved in the buyer talk rather than going through the regular process of reviewing and renewing loans.
At the end of the month of March, gross bad loans at Indian banks amounted for 3.1 trillion rupees (US$48.83 billion), representing 4.6% of total loans, according to the central bank. Total troubled loans made up for 11%, including loans that are stressed but not yet classified as bad.
Banks say they are now moving faster than before and that they intervene at the first sign of trouble by multiplying the number of officers and specialized branches to go after bad borrowers
“These days people are getting on to the job the moment you have an early warning signal that something may happen in a company and you have thousands of crores at stake,” told a senior banker from a state-run bank. One unit of crore represents 10 million rupees.
Branches have been put in place by the SBI to concentrate all attention on recovering loans, as well as to enable a faster and more efficient handling for cumbersome paperwork. The SBI also encourages managers to take pictures of themselves on seized assets as a proof of the change of ownership. They are working on developing a website as well which will be a portal used to showcase all the seized assets that are available for auction.
“Companies can sometimes fall in love with their assets, but bankers can’t afford to do that,” told SBI’s Malhotra.
The chairman of Union Bank of India, Arun Tiwari, explained his state-run lender has reviewed its system and has created three separate general managers, responsible for large, middle and small sized loans. “You have to go out in the field,” he added.