The Reserve Bank of India (RBI) on Friday said recovery and resolution of bad loans showed a significant increase during the year ended March 2018, aided by the Insolvency and Bankruptcy Code (IBC) and other recovery methods.
The total amount recovered spurted to Rs 528,000 crore as of March 2018 as against Rs 38,500 crore in the same period of last year, according to data released by the RBI on Friday. Of this, as much as Rs 492,500 crore was recovered through the IBC resolution mechanism as against nil in the last year.
The amount recovered through the SARFAESI Act rose to Rs 26,500 crore from Rs 25,900 crore a year ago. “Recovery of stressed assets improved during 2017-18 through the IBC, 2016 and Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests (SARFAESI) Act, 2002,” the RBI’s ‘Report on Trends and Progress in Banking’ released on Friday said. The RBI had sent a list of 12 big defaulters to banks for recovery under the IBC in 2017. Apart from vigorous efforts by banks for speedier recovery, amending the SARFAESI Act to bring in a provision of three months’ imprisonment in case the borrower does not provide asset details and for the lender to get possession of mortgaged property within 30 days, may have contributed to better recovery, the RBI said.
Further, recovery through Lok Adalats and Debt Recovery Tribunals (DRTs) declined alongside the number of cases referred partly indicative of growing clout of the IBC mechanism for resolution of stressed assets. Apart from recovery through various resolution mechanisms, banks are also cleaning up balance sheets through sale of doubtful and loss assets to assets reconstruction companies (ARCs) and other banks, NBFCs and financial institutions by taking haircuts, it said.
During 2017-18, the acquisition cost of ARCs as a proportion to the book value of assets increased, indicating better realisations by banks on sale of stressed assets. Bank group-wise, private banks have been most aggressive on asset sales. PSU banks lagged in asset sales mainly owing to large haircuts and various management issues, it said. “On the positive side, some PSU banks have strengthened inhouse expertise for recovery of NPAs, spurred by the need for faster resolution,” the RBI said.
Quarterly data suggests that during the first half of 2018-19, sales of stressed assets to ARCs by both PSBs and PVBs witnessed deceleration. The share of subscriptions by banks to security receipts (SRs) issued by ARCs declined to 79.7 per cent by end-June 2018 from 82.7 per cent a year ago. “Since April 1, 2017 the provisioning norms have been made progressively stringent in order to reduce their investments in SRs and incentivise ARCs and other financial institutions to bring in more capital,” the RBI said.