The country's largest lender by assets, State Bank of India (SBI), has written off loans worth Rs 1.79 lakh crore in the last four years, of which Rs 52,387 crore was written off in FY20 alone, data published in SBI’s annual report 2019-20 shows.
A loan is written off when the bank finds the account non-recoverable through normal operations. Such accounts need to be fully provided for. Provisions refer to the amount lenders need to set aside under RBI norms to cover problematic loans. The bank did write-offs worth Rs 58,905 crore in FY19 and Rs 40,196 crore in FY18.
“The write-offs happen every year wherever the bank doesn't find any scope to recover certain loans. In the current economic scenario, this trend is not surprising,” said a banking industry official on condition of anonymity.
Recoveries from technical write-offs improve
SBI recovered Rs 9,250 crore from the Advance Under Collection Account (AUCA) in FY20 as against Rs 8,345 crore in FY19, the bank said in its 2019-20 annual report. AUCA refers to chronic bad debt cases where recovery is unlikely in the normal course. The bank moves such accounts to AUCA, known as technical write-offs, although recovery efforts will continue. The improvement in recoveries in AUCA augurs well for the bank. In FY18, SBI had recovered only Rs 5,333 crore from AUCA and Rs3963 crore in FY17.
“AUCA absorbs a loan account only when the respective departments find recovery nearly impossible in the normal course. Hence, these are kind of technically written-off loans. But, this doesn’t mean that the money is gone since recovery attempts will continue,” said the official quoted earlier.
In general, SBI expects a big spike in non-performing assets (NPAs) in the fiscal year 2021 against the backdrop of COVID-19 and is taking preemptive measures to avoid bad loan spike, the bank said in the annual report. “A large spurt in NPA Level during FY2021 was anticipated under the backdrop of COVID-19. To counter this, your Bank is taking several pre-emptive measures in extending assistance to its borrowers, so that they can face the current challenges and continue as performing assets,” SBI said.
Bad loan threat looms
As at March-end, SBI has gross NPAs of 6.15 percent as compared with 7.5 percent in the year-ago period. Net NPAs improved to 2.23 percent from 3.01 percent in the year-ago period. In absolute terms, Gross NPAs declined to Rs1.49 lakh crore from Rs 1.72 lakh crore in the year-ago period.
To tackle NPA cases more efficiently, the bank has constituted a special vertical called stressed assets resolution group (SARG), which will focus on resolution of NPAs with a sector-specific approach. The vertical is headed by managing director, supported by deputy managing director, and three chief general managers overseeing the sector-wise portfolio.
The account management teams function under the guidance of seven general managers. "As on March 2020, SARG has 19 Stressed Assets Management Branches (SAMBs) and 53 Stressed Assets Recovery Branches (SARBs) across the country, covering 61.26 percent and 86.03 percent of your Bank’s NPAs and AUCA, respectively," the bank said in the annual report.
The banking sector is likely to witness a major spike in NPAs going ahead on account of the impact of COVID-19 on industries, which will in turn impact the cash flows of companies and make recovery process difficult.
NCLT comes in handy
A significant portion of the recovery at SARG came through the National Company Law Tribunal (NCLT) route, SBI said. The vertical also implements special one-time settlement schemes from time to time. A team has been set up to look after the sale of Assets to Asset Reconstruction Companies (ARCs) on Cash and/or Security Receipts basis, the bank said. Banks sell bad assets to ARCs at a discount to take the burden off the balance sheet. ARCs attempts to resolve those accounts and sell to potential buyers.
According to SBI, a total of 821 cases were referred to the NCLT as on March 31, 2020, out of which 662 cases have been admitted. SBI has recovered an amount of Rs 12,024 crore in the account of a single big borrower through the NCLT process. Also, 82 cases have been resolved, including some high-value accounts from the RBI’s reference lists, the report said.
Further, SBI has constituted a Special Situation Team of experts in credit monitoring and resolution at SARG for the accounts of Rs 500 crore and above in SMA2 (accounts where payments are overdue past 60 days), SBI said, adding this helps in monitoring and putting in place resolution plan from the very beginning of default and to take proactive resolution measures at an early stage of default.
“Today, SARG stands as one of the most important verticals of your Bank and the GNPA of your Bank is on course of a downward journey. Resolution of stressed assets by SARG presents the following latent income generating avenues for your bank,” SBI said in the annual report. Besides, SARG has introduced methods such as arranging mega e-auction of a large number of properties on a pan-India basis and identification of un-encumbered properties of borrowers and guarantors.
According to analysts, the bad loan situation is likely to worsen going ahead. “The real impact will be known when the moratorium period gets over by August 31. Till then banks cannot understand the actual impact of COVID-19 on asset quality,” said Siddharth Purohit, analyst at SMC Global securities.
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