Debts have to be restructured, else NPAs will rise
Given how impaired loans, including NPAs, at PSU banks are up to over 12% of total loans and the pace at which loans are piling up at the Corporate Debt Restructuring cell—from about R5,000 crore per quarter in FY11, these are at R24,859 crore in the September quarter—the CBI investigation into one of SBI’s eight deputy managing directors is bad news. While deputy managing director Shyamal Acharya has also been asked to go on leave by SBI—pending an internal investigation by two of SBI’s senior-most managing directors—for allegedly accepting a bribe to clear a R400 crore loan and not for cases at the CDR cell, the case is certain to make bank officials that much more cautious in either clearing new loans or restructuring impaired loans. At a time when bankers need to be pragmatic, while being firm, about restructuring, such an event is likely to make bankers more risk-averse. So, while bankers probably need to take more equity stakes in a project being restructured, in order to benefit from a potential upside when it turns around, a more risk-averse proposal would mechanically ask promoters to simply bring in more capital even while it is obvious they are not in a position to do so.
This is where both the banks and RBI need to step in to give some perspective. Analysis needs to be done, for instance, to see what portion of loans is in trouble due to government delays—several years to get an environmental clearance, for example. Once this is done, for instance, it will be relatively easier for bankers to sanction recast proposals in such cases. More important, norms need to be drawn up for banks to take up a higher share of promoter quotas in different types of projects and to, within a certain period of time, simply sell the asset to someone else if the repayments are not coming through—for whatever reason, bankers have been reluctant to do so in the past. Banks, on their part, also need to do a lot more due diligence—there is little point taking on personal guarantees from promoters if the promoter no longer has too many personal assets. And more robust credit warning systems are needed so that banks can be alert to even the slightest chance of the loan getting stressed. And RBI, to supplement the effort, needs to quickly finalise its guidelines to both incentivise and penalise bankers for recovering/running up NPAs. Part of the build up of bad loans, there can be little doubt, has to do with RBI being slow on hiking prudential norms or tightening those on group exposures—with the finance ministry on the same page on the subject, doing this should be easier now.