Loan recovery branch to be shut for PSU bank boards, more power to officials

KOLKATA: The government has told public sector banks to delegate more powers to lower and mid-level bank officials to speed up debt recovery at a time rising non-performing loans are seen throttling the country's financial sector's growth and prosperity. 

Fears that an already severe bad-loan crisis gripping public sector banks will get out of hand has forced the government to make it easier for banks to recover money. 

In a letter to bank chairmen recently, a senior finance ministry official asked each bank not to let board approvals delay decisions regarding stringent recovery measures. "I was also surprised to hear that in certain cases, permission of the board is required before stringent recovery measures could be initiated," Rajiv Takru, financial services secretary told bank chairmen in a recent letter.

"I would like to know the position in your bank. It is not understood why such a provision should exist and what is the extra level of wisdom that could operate in a case at the board level when each passing day results in higher potential losses for the institution," Takru added. 

Slew of layers slows PSU banks 

Mounting NPAs at various public sector banks have affected investor confidence, eroded bank profitability and prevented them from pursuing growth opportunities. The government has also been forced to consider equity infusion after a sharp increase in recent years in restructured assets plus non-performing loans as a percentage of advances. 

Gross NPAs of public sector banks increased from 2.28% in March 2010 to 4.01% in September 2012, Minister of State for Finance Namo Narain Meena informed the Lok Sabha last year. For the SBIBSE 1.98 % group, the gross NPA (as a percentage of gross advances) jumped from 2.82% in March 2010 to 5.16% in September 2012. The increase had as much to do with a slowing economy as with delays in loan recovery. 

"The speed at which private sector banks act is much faster than government banks," said Akeel Master, partner and head of financial services at KPMG in India. "How soon banks convert their market intelligence into action becomes the defining factor. In public sector banks, different layers of decision-making are perhaps one of the reasons behind the slow reaction time," he added. 

The case of Kingfisher AirlinesBSE -3.43 % is a classic example. Public sector banks are still sitting on non-performing loans of the defunct airline whereas ICICI BankBSE 0.50 %, a lender, managed to sell its Rs 430-crore loan to Kolkata-based Srei Infrastructure FinanceBSE -1.87 % last year itself. 

All banks have recovery committees empowered to take action against defaulters. But government officials have discovered the boards still involve themselves in all decisions, defeating the purpose of the committees.
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