The Reserve Bank of India said recoveries and resolutions improved in the year ended March 2018, primarily because of evolution of the new bankruptcy law and individual efforts of banks.
Higher Sales To ARCs
Banks also used the asset reconstruction company route to considerably improve their balance sheet through sale of bad loans. In FY18, the acquisition cost of ARCs as a proportion to the book value of assets increased, indicating better realisations by banks on sale of stressed assets.
While private lenders were the most aggressive in ARC sales, public sector banks lagged mainly owing to large haircuts and management issues, the RBI said. Some public sector banks did manage to improve their internal bad-loan recovery processes, the report said.
But quarterly data suggest that sale of stressed assets to ARCs by public and private banks slowed in April-September 2018.
Banks Under PCA Show Improvement
RBI said the prompt corrective action framework, which places operational restrictions on weak lenders, helped improve their performance. One private and 11 public sector banks are under the framework.
PCA banks’ share of current account and savings account deposits improved, while the reduction in the share of bulk deposits helped them lower cost of deposits, the report said.
These banks also increased recoveries from bad loans, while containing the growth in advances and deposits, according to the RBI. They also showed lower growth in gross bad loans compared to lenders not under the PCA framework, it said.
Still, bad loan ratios and capital positions of PCA banks deteriorated, according to the regulator. That was primarily due to decline in advances, which hurt profitability.
(Updates an earlier version after the RBI corrected data for recoveries through the IBC route)
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