A variety of reasons have been put forward from time to time for the sharp increase in the value of restructured and non-performing loans of Indian banks over the last couple of years. These range from the holding up of clearances to the slowing economy. If a completed power project is not able to get coal supplies due to Coal India not getting environmental clearances, this ensures the loans given to the power projects turn NPA. Similarly, at a time when slowing demand, both locally as well as overseas, is straining the top line and bottom line, it becomes difficult for firms to service bank loans that, over a period of time, turn NPA. To that extent, any turnaround in the economy’s fortunes is expected to slow down the growth in NPAs; faster clearances of projects by the Cabinet Committee on Investments (CCI) will also have the same impact. Were the government to take certain policy decisions, such as on coal price-pooling, this will also help—in this case, power projects that cannot sell their power as it is too expensive will get welcome relief.
The problem, however, is that the debt-recovery process isn’t getting better either. Indeed, it could be getting worse, going by data presented in the latest report of the standing committee on finance. The bulk of loan recovery cases, for instance, are now going through the Sarfaesi route since the new law was supposed to be dramatically faster when it came to recovering loans—from 46% in FY10, nearly 60% of all loan recovery cases (by way of the amounts involved) went through this route in FY12. Debt recovery tribunals were also presented as a fast way to recover loans and the value of cases going through this route rose from 31% of all cases in FY10 to 39% in FY12. Yet, the recovery rates have plunged, especially in the case of the debt recovery tribunals, from 32% in FY10 to 17% in FY12. In the Sarfaesi case, the value of recoveries were just 30% of all the cases referred (in terms of value) in FY10 and this fell to 29% in FY12. Given that NPAs and restructured loans have risen to around 12% of all bank loans today, fixing this is something the government needs to give serious thought to.