Banks To Name And Shame Corporate Debt Defaulters
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Fed up with a profitable textile company's failure to repay its loan, UCO Bank has taken its grievance public, placing newspaper ads last month that brand the industrialist owner of S Kumar's Nationwide Ltd a defaulter.
State Bank of India (SBI), Bank of India Ltd and Bank of Baroda are also preparing to name and shame corporate borrowers which are not paying them back, bank executives told media.
This aggressive tactic for dealing with bad debt marks a major departure from the traditional laid-back approach of lenders.
Weighed down by stressed loans of nearly $150 billion - equivalent to more than 10 per cent of bank assets in the country - and against a backdrop of the slowest economic growth in a decade, banks are bringing an unprecedented intensity to their recovery efforts.
"We are going hammer and tongs to recover loans," said M S Raghavan, executive director at Bank of India, which last year began opening debt recovery branches to pursue defaulting borrowers.
In the banks' arsenal of debt recovery tools are the power to seize and sell assets, take deadbeat borrowers to court, sell loans to investors, and beef up debt recovery teams, although a slow-moving legal system and the lack of a bankruptcy process limit their effectiveness.
Officials at state banks, which account for about three-quarters of lending in India, expect the push will cut bad loan ratios by at least 1 percentage point.
Bank of India's non-performing loan (NPL) ratio improved slightly to 2.99 per cent of total assets at end-March from 3.08 per cent at end-December.
"If we don't intensify, nothing is going to come to us," Raghavan said.
Traditionally, Indian lenders, especially those controlled by the government, have tried to nurse customers through tough times by easing terms or "evergreening" loans - giving new loans to pay old ones - an unlawful practice that many in the industry say is common.
In a country where businesses thrive on personal relationships, banks have typically avoided involving the courts or liquidating assets - time-consuming efforts which often yield only minor results.
Even the so-called "fast-track courts" for banks, formed in the last decade, can take more than two years to resolve a case.
The reserve Bank of India has called for better management of bad debts, and wants to strengthen oversight by lenders.
Banks tried to recover on $10.9 billion in bad loans but managed just a quarter of that through liquidation and lawsuits in the year ended March 2012, the latest data from the RBI shows.
Banks are particularly needled by business chiefs who sit on huge personal fortunes, but whose companies fail to repay loans.
In March, Finance Minister P Chidambaram asked state banks to move against rich "promoters" to recover loans from failing companies after a $1.4 billion default by Kingfisher Airlines Ltd, controlled by liquor baron Vijay Mallya.