Debt collection frm big corporate is big challenge for banks

Debt refers to something that is owed or due either physically or metaphorically. In the
physical sense, the parties to debt are lenders(those who give) and borrowers (those who
receive). In the metaphorical sense, debt refers to a moral obligation not based on physical
value (e.g.: debt of gratitude).
Debt was the first form of commerce (barter system) documented in human history and
existed about 2,900 years prior to the invention ofcoinage. Today there are many examples
of lenders of monetary debt that include sovereign nations, banks, credit
card companies,payday loan providers, individuals, etc., who in many instances subject
their borrowers to contractual terms that designate the amount and timing of repayments of
the debt and that frequently include the payment of principal and interest.[1]

New Delhi: Indias state-owned banks, which control three-fourths of the assets of
the Rs.83 trillion local banking industry, are finding it difficult to recover their money
from defaulting borrowers although mounting bad loans put pressure on their capital
base and threaten their ability to grow in a tight competitive environment.
It is like putting toothpaste back into the tube, saidSoundara Kumar, a deputy
managing director at State Bank of India (SBI) heading its stressed assets
management department. Giving a loan is the relatively easy part, but recovery is far
more difficult. You have to act before the loan fully goes bad. All such loans very
closely monitored now through multiple channels.
About 6% of SBIs loans have turned bad and Kumars department is handling at
least Rs.20,000 crore worth of loans.
To hasten recovery, SBI has formed three different committees about two months ago
to monitor stressed assets and is likely to install a computer software by June to detect
early signs of slippages.
While Kumar heads one of the three committees that monitors stressed assets worth
between Rs.50 to Rs.100 crore, loans between Rs.100 crore to Rs.500 crore are
monitored by another committee headed by Pradeep Kumar, managing director in

charge of corporate banking. Loans of above Rs.500 crore that might turn bad are
monitored by a group led by SBI chief Arundati Bhattacharya.
Indias largest lender has also designated 52 branches as dedicated stressed assets
recovery branches, which handle recovery of loans in the range of Rs.10 lakh
to Rs.1crore.
A programme called Kitna Baki Hai (how much is left) to recover bad loans in the
agriculture segment, which constitutes 19% of SBIs total gross non-performing assets
(NPAs), has also been launched.
Under this, branches will report the progress of farm loan recovery to headquarters on
a daily basis.
In the past, there used to be some disconnect between our branches and
farmers,said M.G. Vaidyan, chief general manager, rural and agricultural business,
at SBI. We are now on a serious mission on the ground to reconnect the farmers and,
in the process, bring down the bad loans.

Mounting pressure
The story is not different for other state-run banks, which are fighting hard to pare bad
debt on their books.
Gross bad loans of Indian banks grew to Rs.2.43 trillion at the end of December,
about 36% rise from last year. Thats only half of the total stressed asset pile.
About Rs.4 trillion of loans are being restructured under the so-called corporate debt
restructuring mechanism and through bilateral restructuring.
Together, stressed assets constitute about 11% of the total loans of Indian banks.
These loans too can turn bad in a slowing economy, eventually impacting the health of
the financial system.
Indias economy grew at 5%the lowest in a decade in the fiscal year 2012-13 and is
widely expected to grow at sub-5% level in the current fiscal year as well.
Rating agencies have already flagged their caution on the rise in bad loans.
In February, India Ratings and Research Pvt. Ltd, formerly known as Fitch India, said
it expects Indian banks stressed assets to grow to 14% of total loans by March 2015.
Icra Ltd, another rater, on Thursday said that the gross NPAs of banks could rise to
4.2-4.4% by March, from 4.1% as on December.

Of this, the gross NPAs of government banks could rise to 4.8-5% by March, Icra
said.
The earlier banks recognise NPAs and take a hit on their books, the better. The more
you delay it, the problem will only become bigger. Banks need to isolate the stressed
assets and address the issue separately. Do not mix it up with normal business,
said Saurabh Tripathi, partner and director, head of financial services, Boston
Consulting Group.
The rise in bad loans has also put pressure on the capital base of state-owned banks,
since they are required to make additional provisions against stressed assets. Under
existing norms, banks need to set aside 5% for a loan they restructure, while the
provisioning can rise to 100% if the asset turns bad.
However, the Congress-led United Progressive Alliance government set aside
only Rs.11,200 crore for capital infusion into government-controlled banks for fiscal
year 2014-15, lower than Rs.14,000 crore last year. According to Moodys Investors
Service, this is less than half of what Indian banks actually need to meet the advanced
capital norms under the global Basel III rules.
Against this backdrop, state-owned banks are facing immense pressure from the
government, the majority shareholder, to recover loans and reduce bad debt.
Biggest challenge facing the public sector banks is NPAs, finance minister
P. Chidambaram said on Wednesday after a review of the performance of stateowned banks. Chidambaram asked banks to focus on recovery.
To recover money, banks are pushing their officials to do door-to-door recovery,
employing call centres to make regular follow-ups, besides clamping down on wilful
defaulters.
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, said V. R. Iyer, chairperson and managing director of Bank of India, another
large state-run bank, on 30 January when the bank announced its December-quarter
earnings.
State-run banks actively using call centres for recovery of loans was less heard of till
recently, unlike their rivals in the private sector.
There is lot of focus going into recovery, said Arun Kaul, chairman and managing
director of UCO Bank, another state-run bank. On giving new loans, we are very

cautious, said Kaul. UCO Bank had 5.2% gross NPAs at end-December, compared
with 5.5% year-ago.

Origin of the problem

Behind the current bad loan pile of government banks lies years of lapses in the due
diligence process while giving loans, soft approach of banks towards defaulters, a
slowing economy that has impacted the cash flows of corporations and clearance
delays for large projects that has resulted in cost overruns, experts said.
Till a year back, banks were saying that things were fine (with regard to bad loans).
If the rating of a firm is downgraded, recognize that there is an issue, said Ananda
Bhoumik, senior director at India Ratings and Research. Banks must ensure that the
concentration risk to any sector or a company is under control. Also, the underwriting
process needs to be up to speed.
In the recent past, banks have also been facing an increasing number of cases of wilful
defaulters, or companies, which have the means to pay back but wouldnt do so. SBI
alone has classified about 1,187 borrowers as wilful defaulters for loans amounting
to Rs.9,980 crore.
However, recovering money, particularly from corporate defaulters, has proved
difficult, say bankers.
The entire system should support banks to recover money, sending a message to the
defaulters that loan dues have to be paid. Like chapter 11 (bankruptcy law) in the US,
there should be laws in India that allow banks to wind up a defaulting company
faster, said R.K. Bansal, executive director at IDBI Bank Ltd. For instance, if
banks want to sell the assets of a defaulted borrower, it takes lot of time as borrowers
often approach courts and secure legal stay, prolonging the process. Dinesh
UnnikrishnanSTATE-RUN BANKS

RBI sees improvement in bad

loan management of banks: S.S.
Mundra
While the banking sector as a whole seems to have performed well on loan recovery,
some individual banks diverged, RBI deputy governor S.S. Mundra said

For 39 listed banking, gross NPAs for the June quarter rose 96.42% year-on-year to Rs6.3
trillion, from Rs3.21 trillion a year ago. Photo: Pradeep Gaur/Mint

Mumbai: Fresh accretion of bad loans moderated in the fiscal first quarter, with most
banks performing better in loan recovery, Reserve Bank of India deputy governor S.S.
Mundra said on Tuesday.
In April-June, the level of bad loans arising out of restructured assets also dropped,
Mundra said, referring to an investment advisory report by an unnamed third party.
The fresh addition may not be happening from the corporate lending side but from
MSME (micro small and medium enterprises), which is what the report is saying. We
will have to verify this claim. If that is the trend, there will be obviously some concern
about it, Mundra said.
While the banking sector as a whole seems to have performed well on loan recovery,
some individual banks diverged, Mundra said.
While for some the worst is behind, for others the problem still persists, he said,
adding that bad loan management was still a work in progress.
Provision will need to continue because of the fresh NPAs which are coming and
also due to ageing of old NPAs.., he said. Most of the cases which are recognised or
are being recognized, they carry substantial non-fund exposure also. As we move into
the year, there would be crystallization of some of the non-funded exposure, Mundra
said at a banking summit organised by the Federation of Indian Chambers of
Commerce and Industry (FICCI) and Indian Banks Association (IBA).
For 39 listed banking, gross NPAs for the June quarter rose 96.42% year-on-year
to Rs.6.3 trillion, from Rs.3.21 trillion a year ago.
Banks will have to do the hard work when it comes to resolution of troubled assets,
Mundra said, rather than depending on a third party. Meetings with respect to badloan resolution will need to be attended by senior members of banking consortiums to
achieve quicker action on accounts, he said.
Mundra also brought up the issue of misselling of third-party products among banks.
This was a cause for deep concern for the regulator, he added.

Mundra also cautioned banks against aggressively growing their retail, agriculture and
MSME loan books. We cant have unlimited farm loans...without farm reform,
Mundra said.

Lok Sabha to take up debt

recovery bill on Monday
The government has come up with the legislation at a time when there is mounting concerns over
loan recovery in view of stressed assets

New Delhi: The government is scheduled to move in the Lok Sabha on Monday an amended bill
to strengthen debt recovery laws with an objective to improve the ease of doing business in the
country.
Introduced in the Lok Sabha in May, the bill seeks to amend four legislationsSecuritisation
and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act,
2002; the Recovery of Debts Due to Banks and Financial Institutions Act, 1993; the Indian
Stamp Act, 1899, and the Depositories Act, 1996.
Following the introduction, the Enforcement of Security Interest and Recovery of Debts Laws
and Miscellaneous Provisions Bill, 2016, was referred to a parliamentary joint committee.
As per the Lok Sabha schedule of legislative business for Monday, the Enforcement of Security
Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Bill, 2016, as
reported by joint committee is listed for consideration and passing.
The government has come up with this legislation at a time when there is mounting concerns
over loan recovery in view of stressed assets to the tune of over Rs.8 trillion in the banking
system. The legislation proposes to give the RBI powers to regulate asset reconstruction
companies, prioritise secured creditors in repayment of debts and provide stamp duty exemption
on loans assigned by banks and financial institutions to asset reconstruction firms.
Around 70,000 cases involving more than Rs.5 trillion are pending in debt recovery tribunals
and the proposed amendments would facilitate expeditious disposal of recovery applications.

2)Indian Overseas Bank: No CEO,

20% bad loans
As Indian Overseas Bank tackles the highest ratio of bad loans among lenders in
India, it doesnt help that there hasnt been a CEO at the helm for about three months

Frm my view the debt collection is not a big challenge for

thee banksengaluru: The service tax department has staked its claim to any
proceeds from the sale of assets belonging to UB Group chief Vijay Mallya and his
companies in the Rs.9,000 crore loan recovery case being heard by the Debt
Recovery Tribunal (DRT) in Bengaluru.
In its submission to the tribunal on Wednesday, the department said it had claims on
all the assetsKingfisher House in Mumbai, two helicopters, four jets and other
known assets of Mallya that are mentioned by State Bank of India, which is leading
the consortium of 17 banks that have initiated loan recovery proceedings.
Kingfisher Airlines Ltd the now grounded airline promoted by Mallya
owes Rs.1,012.96 crore (principal amount only) to the service tax department.
Our dues must be taken into consideration, Advait M. Sethna, counsel appearing for
the service tax department, said in his submission to the tribunal.
He added that on 6 June 2012, the service tax department had frozen Kingfisher
Airliness accounts and on 3 May 2013 attached airline headquarters Kingfisher
House in western suburb of Mumbai to recover its dues much before the SBI moved
DRT to recover its own dues.
The Karnataka high court is hearing a case in which both SBI and the service tax
department are battling it out to decide which has the first right over sale proceeds of
Mallyas attached assets. Some of the assets overlap, the counsel said.
The department also laid claim to the remainder of the $75 million payable to Mallya
by spirits maker Diageo Plc. In February, Diageo paid $40 million for Mallya to step
down from the post of chairman at United Spirits Ltd, which the UK-based company
controls.

Mallya left for the UK in early March as lenders to Kingfisher Airlines closed in on
him to recover money owed by the airline, grounded in 2012 under the weight of
heavy debt and accumulated losses and staff unrest over unpaid salaries

SBI seeks DRT certificate to recover debts from Vijay

Mallya
2)

What to know about debt collection

When a debt goes unpaid for a period of time, usually starting 30 days after
the due date, it may be reported as delinquent. At some point, usually after
180 days, the creditor such as a credit card company, bank or medical
provider gives up on trying to collect. It may sell your debt to a third-party
debt collector in order to get at least some money and take the debt off its
books.
Before, you were getting bills from a creditor you recognized. Now youre
getting debt collection notices from a different company. You still owe payment
on the debt, but a third party has bought the right to collect.
Youre not alone: 35% of Americans, or about 77 million people, have a debt in
collections on their credit report, according to a2014 report by the Urban
Institute.
A debt in collections will leave a mark on your credit report for up to seven
years, making new lines of credit harder to get and more expensive.