Errant Borrowers To Find The Going Tough As NPAs of PUS Bank Rings In Alarm Bells (NSE:BANKINDIA)

Wayward Borrowers would find the going to be tough with Reserve Bank of India announcing a revised set of guidelines. The central bank has set norms for dealing with non-cooperative borrowers, as well as, willful defaulters. However, it remains to be seen whether the revised guideline would help the public sector banks, who have higher non-performing assets.

The value of outstanding value to be recovered was estimated to be approximately Rs.2.36 lakh crore. There was also a sharp increase in pending amount before the Debt Recovery Tribunal or DRT. RBI data indicated that at the end of March 2014, loans worth over Rs.2 lakh crore were pending before the 33 DRTs. It meant nearly 40% more than the last year’s Rs.1.43 lakh crore.

Modified Norms

RBI’s revised definition of non-cooperative borrower would more or less appear same as to that of a willful defaulter. Accordingly, a non-cooperative borrower meant as one who is not interested in repaying timely and refusing to cooperate with the banks on the recovery of dues. It included refusal to provide the necessary information sought, obstructing sale of securities, and refusing to provide access to collateral securities and financed assets.

Effectively, a non-cooperative defaulter obstructs the lenders’ efforts to recover the dues. The revised norm assumes significance in the wake of some public sector banks declaring Vijay Mallya as willful defaulter following the Kingfisher Airlines’ debacle. RBI has put a threshold exposure of Rs.5 crore for declaring a firm as non-cooperative.

Higher Provisions

Strangely, RBI has not prevented the lenders to provide fresh loans to non-cooperative borrowers. However, it wanted the banks to make higher provisions. It puts the ball on the court of the bank’s executives to decide.

Though the overall banks’ aggregate gross NPA ratio rose to 4.1% at the end of March in 2014 from 3.4% last year, public sector banks were the most to be affected by it. Its gross NPAs increased to 4.7% from 3.8% whereas private sector bank’s gross NPA remained at 1.9%.

In terms of net NPA also, PSU banks totaled 2.7%, up from 2.0% in the year-ago period while private sector banks net NPA rose to 70 basis points from 50 basis points.