Bad Corporate Loans
When it comes to big corporate loan defaulters, banks have always treated them with kid gloves. Such defaulters are rarely med and shamed publicly, because that will hurt business sentiment — so goes the argument. The wheels of economy cannot keep turning without entrepreneurs taking loans to set up businesses and creating jobs, so banks need to forbear if some of them fail to return loans. However, the problem has become too big for banks to sit upon and pretend all is well. In turn, the government has had to change its strategy, what with mostly public sector banks groaning under unsustaible non-performing assets (NPA) burdens. The latest Reserve Bank figures alysed by a leading tiol daily have shown that corporates made up as much as 73 percent of bad loans the public sector banks were saddled with by March 31, 2017; in rupee terms, PSU banks had a gross NPA burden totalling Rs 6.41 lakh crore, of which Rs 4.7 lakh crore was owed by corporates. Besides, big corporate groups owed more — as much as Rs 5.27 lakh crore by December 31 last year. According to experts, corporate groups failed to return loans because their businesses went kaput or they committed fraud, or because the bankers did not assess their risk potential properly. In comparison, loans to the business services and agriculture sectors accounted for 13.21 percent and 8.89 percent. As for retail loans like home loans, car loans and persol loans advanced, only 3.71 percent (Rs 23,795 crore) had turned bad. Overall, the dismal gross NPA picture has the government worried, because most of it is on the books of PSU banks. As on September 30 last year, this burden was Rs 7,33,974 crore for public sector banks, compared to Rs 1,02,808 crore for private banks. Last year, the government put together a Rs 2.11 lakh crore package to re-capitalise PSU banks, while drawing up a strategy to deal with the bad loan problem. Accordingly, the smaller PSU banks are sought to be protected by reducing their exposure to corporate loans and turning them into retail banks – these banks will advance retail loans in lieu of reliable assets, and carry out cost-cutting measures like shutting down unprofitable branches. Only large PSU banks like State Bank and Punjab tiol Bank will advance corporate loans.