There’s a joke doing the rounds in banking circles. As Asia’s richest banker Uday Kotak puts it, for banks, assets have become liabilities and liabilities have become assets. Toxic loans are at a jaw-dropping $200 billion or more, forcing the central bank to deep-cleanse the system. When it shortlisted 41 large accounts for resolution, the dominant view has been that these big borrowers were the main pollutants of the banking industry.
However, the February 12 circular dispels all such myths as it mandates banks to report loan defaults every week even for accounts with exposure of as little as `5 crore. There’s more. The central bank is even insisting on conducting audits for loan accounts above `50 crore.
These measures may appear punitive, but there seems to be a method in the madness. As per RBI data, over 86 per cent of all bad loans are from borrowers with an aggregate exposure of `5 crore. It means, though big borrowers dominate in terms of value, smaller accounts form a larger chunk in terms of volume. Such heightened supervision may ensure compliance of good accounting principles.
Paying dues on time should be the natural behaviour of borrowers, which the revised framework attempts to inculcate. But experts warn it may harm credit growth and even economic recovery should banks clench their fists.
Stressed assets were an outcome of rapid credit growth in excess of 20 per cent every year between 2006 and 2011. But it wasn’t until recently that NPAs shot up, adding to the number of cases under resolution. According to IBBI, over 700 corporate borrowers are undergoing insolvency resolution.
Sadly, there are just 10 benches at the National Company Law Tribunal with a combined 26 judges to hear over 2,500 insolvency cases. While we have done well ending the banker-borrower nexus forcing de jure recognition of NPAs, loan recovery and resolution processes urgently needs to be beefed up to avoid a credit crisis.
