The Covid-19 relief measures to help banks seem to be turning recovery efforts on its head.
As lenders were barred from classifying accounts as bad last fiscal, both suit-filed defaults and wilful defaults crashed with a giant thud.
The outstanding amount on suit-filed cases (defaults above Rs 1 crore) fell to Rs 4.1 lakh crore as on March 2021, from Rs 7.3 lakh crore as on March 2020.
Likewise, wilful defaults (defaults above Rs 25 lakh) fell by Rs 5,000 crore during the same period. The sharp decline is, perhaps, a first in recent years since the twin-balance sheet problem began amid rising bad loans. It’s likely that the numbers will spike later this year with asset classification norms being restored.
Latest data from TransUnion-Cibil shows that though the decline in wilful defaults is relatively less, its share in overall suit-filed cases increased to 50 per cent now from about 40 per cent last year. Of the Rs 2.1 lakh crore wilful defaults, public sector banks accounted for 88 per cent or Rs 1.8 lakh crore.
State Bank of India has the biggest burden at Rs 67,077 crore (belonging to 1,801 borrowers), while the 10 nationalised banks including Punjab National Bank, Bank of Baroda, and others have an aggregate Rs 1.1 lakh crore marked as wilful defaults. This is lower than the previous year’s Rs 1.4 lakh crore.
A suit filed case is one where lenders move court when borrowers default loan payments, while wilful defaulters are those who deliberately avoid repayments or siphon off or divert borrowed funds for undisclosed purposes.
The Supreme Court’s order on standstill of NPA classification, coupled with the lenders’ inability to enforce recovery efforts led to fewer new cases in FY21.
“With standstill on asset classification directed by the Supreme Court and consequent inability of lenders to classify accounts as non-performing and enforce recovery actions, the recovery suits filed by the lenders declined. Additionally, resolution of some of the large ticket NPAs could also be a factor,” Anil Gupta, Sector Head - Financial Sector Ratings, ICRA Ratings told this publication.
Meanwhile, of the Rs 4.1 lakh crore suit-filed defaults, the share of state-run banks fell to 65 per cent from over 75 per cent last year.
This was partly due to the increase in cases from private banks, whose outstanding amount stood at Rs 1.2 lakh crore as on March 2021, up from Rs 90,434 crore a year before.
While SBI’s suit-filed defaults remained flat at about Rs 1.6 lakh crore, nationalised banks saw the biggest correction as the outstanding amount fell to Rs 1.1 lakh crore in FY21 from a staggering Rs 3.5 lakh crore.
The comparison may not be entirely apt as the number of banks reduced from 17 to 10 in FY21 due to mergers and also due to privatisation of IDBI Bank.