Sticky loan accounts spiralling

The bane of sticky loans is not restricted to public sector outfits alone. IndusInd Bank, a new generation private sector bank, has a reported a jump inNPAs from 3.96 per cent of the advances to 7.2 per cent this year. Global Trust Bank also witnessed a similar phenomenon. A clear picture about the total NPAs will be known after Indian Bank, UCO Bank, Central Bank of India and other public sector banks announce their financial results.

“The NPA figures have shot up even after a series of loan reschedulements and bail-out packages. Bankers need to tighten their lending strategies and project appraisals. Otherwise, the South-east Asian crisis will repeat in India also,” said the former chairman of a public sector bank. NPAs in India — though not as serious in other South-east Asian countries — are going up despite “stringent monitoring, project appraisals and provisioning norms” by the authorities. The gross NPA levels of banks in Indonesia are in the range of 50-70 per cent of advances, Thailand 35 per cent, South Korea 25-30 per cent and Malaysia 20-25 per cent. India is close behind with 15-17 per cent gross NPA levels.

The net profit of the threefinancial institutions were affected by higher NPAs this year. While IFCI’s NPAs rose by Rs 2,000 crore to Rs 4,000 crore, ICICI’s went up by Rs 800 crore and IDBI by Rs 1,700 crore to Rs 6,800 crore. Bankers are conveniently attributing the increase in NPAs to slowdown in industrial growth, slack demand conditions, excess capacity in a number of industries, technological obsolescence and the loss of competitiveness in some industries.

Institutional sources point out that companies in synthetic fibres, steel, basic chemicals, textiles and glassware sectors were in the forefront of defaulting their loan commitments. The major defaulters include JK Synthetics, Parasram- puria Synthetics, JCT, Modi Cement and Rajinder Steels. “Besides, it’s an open secret that some of the fresh loans sanctioned to steel companies earlier this year were to help them in avoiding defaults,” banking sources said.

Banks and institutions are now paying for financing reckless expansions and diversifications of corporates in thelast three years. Many projects floated by shady promoters are stuck mid-way and some of them have even disappeared after raising money from institutions and public. The Batras, promoters of Rajinder Steels, have fled from the country after raising money from institutions and public. Several others have diverted funds to other areas like real estate and stock markets.

In some of the cases, banks and FIs are going out of their way to bail out borrowers. For example, FIs would be sacrificing a sum of Rs 376 crore after interest waivers and reschedulement in the case of Flex Industries. This company owes over Rs 620 to banks and institutions. There are several other cases. One way to get back funds stuck in unviable projects is restructuring. Several business groups are now undergoing restructuring of business operations. Once this is completed, banks and FIs would be in a position to recover money from defaulters. Simultaneously, the Reserve Bank of India (RBI) and bankers need to tighten the monitoringmechanism to bring down the NPA level. This is the only way India can avoid repeating a South-east Asian crisis.