Most banks don’t have any incentives to do anything about an account once it is treated as a non-performing asset, according to State Bank of India Chairman Arundhati Bhattacharya.
In conversation with the RBI Governor at SBI’s second banking conclave, Bhattacharya said, “The moment you declare an account NPA, giving further money to it (and very often this is required for stressed assets) becomes almost impossible for two reasons. One of course is the fact that you will actually be bloating your NPA book further by giving it more money.
“Second, if you look at the kind of questioning (by the authorities) that we have to go through, with full 20/20 hindsight, is that if it is NPA why did you give money? What is the reason that you have given money?”
Bankers can say that the regulators allowed it, that it was required in order to revive the project. “But the questioning will be very difficult to manage. As a result, most banks don’t have any incentives once an account is treated as an NPA to do anything about it,” said the SBI chief.
All government owned entities are subject to interrogation from Central Vigilance Commission, which in many cases has created fear psychosis among PSU banks. Rising NPAs has been a major block to the profitability of most Government banks.
As a consequence, the RBI has allowed banks to form joint lenders forum when the borrower does not pay between 60 days to 90 days of due date. Further, RBI has allowed banks to take 51 per cent stake in the defaulting company not meeting the bank demands. Banks can also extend the tenure of projects loans up to 25 years with a clause to refinance them every five years under.
However, Bhattacharya pointed out that even as there is revival in SME (small and medium enterprise) loans, those below Rs 10 crore are still under stress and they need small amount of funding for revival.
"Once you call it as NPA, its dead. When people ask why are we trying so hard, I would say you have to take instances like Ebola. We know Ebola has high mortality, say 40 per cent plus, but that does not mean that if a person gets Ebola we don’t try to resuscitate that person," she said.
On the sidelines, she added that banks asked for one more year of forbearance because the economy is not firing on all cylinders. “…I don’t see any way out. I don’t see banks have any appetite to lend to NPAs.”
She also raised the issue of not having enough liquidity to lend as Liquidity Coverage Ratio (LCR) requirement is leading banks to invest more in government bonds.
“Given that we have so much pre-emption, the LCR is making us keep govt paper at 28% and therefore there is no extra liquidity to lend for the credit growth as CRR, SLR and PSL are taking away liquidity. Hardly 40 of 100 (per cent) is available to lend for commercial purpose,” she said.