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Bad loans: Public sector banks choosing recovery over write-offs

State Bank group's loan recovery maximum in Q2 while Bank of India writes-off most.

Public sector banks,on repeated prodding by the finance ministry,have begun serious efforts to recover bad debts rather than writing them off.

In fact,for the quarter ending June 2013,state run lenders,who together face gross non-performing assets (NPAs) of 3.99 per cent,managed to recover bad loans to the tune of Rs 5,467.17 crore,while writing off Rs 5,046.24 crore.

The trend is a sharp reversal from the previous quarters where banks chose the option of write offs rather than work towards recovery.

Banks have to make 100 per cent provisioning for loan write-offs,which impacts their profitability but helps them show lower NPAs on their books.

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For instance,in the fourth quarter of 2012-13,17 of the 26 state-owned lenders had written off over Rs 10,000 crore of loans while recovering only Rs 4,172 crore.

However,even in the April to June quarter of 2013-14,the finance ministry has identified six public sector lenders whose write-offs were greater than recovery. Bank of India has had the highest write-offs that amount to nearly Rs 600 crore and are over one a half times the recovery of loans worth Rs 370.91 crore in the period.

The ratio between write-offs and recovery is even sharper at Indian Overseas Bank,which has written off Rs 553 crore of loans while recovering just Rs 198 crore in the first quarter of 2013-14.

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Bank of Maharashtra,Indian Bank,Syndicate Bank and Union Bank of India are the others that settled more bad loans than what they recovered,as seen in the chart.

Significantly,all subsidiaries of the State Bank of India (SBI) group have recovered more bad loans than what they settled during the first quarter.

Worried by the rising NPAs,finance ministry had last year asked banks to initiate recovery proceedings against defaulters and also strengthen their monitoring mechanism.

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The issue was taken up for discussion once again when finance minister P Chidambaram met heads of public sector lenders last week.

“Recoveries are taking place but not as much as we would like… every rupee prudentially written off can be recovered… I hope it will improve further,” Chidambaram had said.

Gross NPAs of public sector banks rose to 1.92 lakh crore or 3.99 per cent for the quarter ending June 30,from 3.42 per cent in the previous quarter. Fresh additions amounted to Rs 45,332 crore while the total reductions in NPAs stood at Rs 17,197 crore in the period.

First published on: 28-10-2013 at 01:23 IST
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