The Public Sector Banks (PSBs) are in financial stress. Some serious measures have been taken to rescue these banks from the crisis. But those measures have only been partially successful. Ashok Kumar Pradhan, MD and CEO of United Bank India (UBI), spoke to BE’s Kishore Kumar Biswas.
Q. How do you view the Indian economy from a banker’s perspective?
A. The economy is not in a pick-up mood. We are saddled with various issues which include low credit recovery. There have been a large number of stalled projects. We had been experiencing consumption led growth earlier but it is not working out now. The growth rate of sale in the automobile sector is going down. The Non-Banking Financial Companies (NBFCs) crisis has been deepening day-by-day and the banking sector is yet to recover fully from the Non-Performing Asset (NPA) problem.
Q. Recovery of loan is a great problem. How are you dealing with it?
A. There are cases with the National Company Law Tribunal (NCLT), which are yet to be solved. It is taking more time than expected. In many cases, we are unable to recover our legal property. At times, we need enforcement of security for the possession of assets. District magistrates often do not give the decision. Sometimes, even after having permission, the police do not cooperate. We also face problem of delayed judgment from the Debt Recovery Tribunal (DRT).
Q. The rate of growth of bank lending has been low. A section of corporate entities is acquiring money through selling bonds, having external commercial borrowings and by other means. In this situation, can the PSBs survive depending only on credit to government, MSME, retail and agriculture sectors?
A. Demand for credit from the corporate sector has been low. The projects are not coming in a desired way. We had traditionally concentrated on retail, MSME and agriculture sectors for making loans. Now, these sectors are also not reaching the desired level. We are also facing problems in the automobile and consumers’ durable sectors. Presently, the purchasing power of people is not very high. Additionally, demand for loan from the housing sector is subdued. The NBFC crisis is also creating problems. Earlier, the growth of NBFC was around 40%. Now its growth rate has come down to about 25%. The banks are also shaky to disburse loans to NBFCs and the credit flow to this sector is low.
Q. Then how will PSBs survive in such a situation?
A. It is really a challenge. But the situation is changing. The NBFCs are not in a good shape. So many investors who would go to NBFCs earlier are expected to switch to PSBs. The PSBs can make loans to them at cheaper rates. The big PSBs have already been disbursing loans to corporates in a big way. Now many private sector banks are also disbursing loans to big corporate houses. We hope a considerable portion of cases will ultimately come to PSBs in future. Now a section of PSBs credit-deposit ratio is low. On the other hand, many private banks are enjoying high credit-deposit ratio (more than 90% or in some cases more than 100%). This is because many PSBs are in a weak financial position. Additionally, we can expect that MSME loan to increase as the government is expected to focus on that sector.
Q. Merger of PSBs is being talked about. How do you see mergers contributing to the rescue of ailing banks?
A. Merger of some of the big five or six banks can be fruitful. But merger of banks with high financial stress cannot be an option. It will not be fruitful. Merger depends on the size of the balance sheets of banks. If the balance sheets are big, then their shock absorbing capacity will be bigger. In that case, the few bigger banks can merge to become two or three banks and that may be fruitful. But mind it, almost all the banks are in stress. In case of big banks, I think that government will be active in rescuing them but in case of small banks, the same may not happen. Therefore big banks have different advantages.
Even world class banks have faced problems. Consider the case of Japan. There consolidation of the banking sector started much earlier. The process is continuing even today. The recent case of SBI merger is different where subsidiary banks were easily brought under one umbrella. It may not be so easy for other banks.
Q. Please give an account of your NPA resolution position. What is the present status?
A. In many cases the NCLT process has been unsatisfactory and companies like Esser Steel, Bhusan Power and Steel and JP Group have been stranded for long. In many cases, resolution is not taking place in a time bound manner. The rules pertaining to resolution in 180 days or 270 days seem to be forgotten. Therefore many lenders are interested in out of court settlements. I think this is a better option of us. In our bank, our provision coverage ratio is 92% for those accounts which have gone to NCLT. For other accounts, it is 72%. So whatever UBI will recover from NCLT, it will increase our balance sheet almost by the same level. We are also wondering why the Indian judicial system is not pressurising the NCLT to resolve issues in a time bound manner. In Kolkata, 31 cases of UBI are not even registered for resolution in NCLT. Only two cases have been registered so far. We have the opportunity go to the NCLAT for faster resolution. But that is not a healthy situation. But in this while, defaulters continue with their businesses. They are not paying any interest to us and are not cooperating with us in any way. The banks are the most affected party in this situation.
Q. It is said that PSBs are short of talent and expertise, particularly in project analysis and interest volatility forecast. How can this be addressed?
A. Banks have been suffering from huge stress. But I do not think that this is related to their human resource issues.
Actually in most of the cases, recovery of loans is mostly dependent on external factors. It is not due to our wrong project analysis or our inability to assess prospects of loan accounts. In many cases, major projects like road construction, or projects in the power sector did not get required the land. Additionally, there has been the problem of coal linkage for the power sector and repayment suffered from these stranded projects. Most of the stalled projects are in the infrastructure sector. The regulatory issues were the main reason behindthis and bankers cannot be blamed. From our experience, we now do not provide loans to infrastructure projects if the availability of land for the project is under question. The private sector banks did not face this problem as they are less exposed to infrastructure loans.