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     Public sector banks (PSBs) have been under stress due to growing bad loans for quite some time now.  Hit hard by the mounting debt, leading PSBs, including Bank of Baroda, Bank of India and IDBI Bank, reported their highest ever quarterly losses aggregating to over 12,000 cr, while others like SBI and PNB witnessed sharp erosion like SBI and PNB witnessed sharp erosion in profits in the last quarter.  The Supreme Court directed the RBI to provide a list of companies that have defaulted on bank loans of over  500 cr, while expressing serious concern over the rise in bad loans.  It also asked the RBI to provide a list of companies whose loans have been restructured under corporate debt restructured schemes within six weeks.

    Quite literally, bad debt is the `debt’ that is not `collectible’ or cannot be recovered.  It can also be a loan wherein the cost of pursuing the debt is more than the amount a creditor can recover. Till Dec end, loans worth over  7 lakh cr went under stress, which means borrowers have not repaid the principal or the interest on loans amounting to the aforementioned figure, in a said tenure.

    The recent spurt in the number of bad loans being reported is a result of an asset quality review undertaken by the RBI in the third quarter, which threw up several weak accounts, most of which have exposure to the infrastructure sector.  SBI reported a massive 67 per cent fall in consolidated net profit at  1,259.49 cr in the quarter to Dec after it classified loans worth  20,692 cr as bad loans.  SBI also warned of more pain points in the Mar quarter to meet the RBI diktat to clean its books by the end of the fiscal year, as the bank has only provided for about half of the accounts that are under stress.  Bank of Baroda posted a loss of  3,342 cr, the highest quarterly loss by any bank, as it undertook the cleaning-up exercise.

   IDBI Bank recorded the next biggest loss at  2,184 cr, followed by Bank of India ( 1,505 cr.) UCO Bank ( 1,497 cr), IOB ( 1,425 cr), CBI ( 837 cr), Dena Bank ( 663 cr), Allahabad Bank ( 486 cr), OBC ( 425 cr), Corporate Bank ( 383 cr) and Syndicate Bank ( 120 cr).

   But dealing with the existing chunk of defaulters – many of them are willful defaulters (promoters who have the ability to pay back but wouldn’t do so) would require tremendous political will and effective judicial mechanism to deal with disputes between banks and defaulters.  The delay in dealing with disputes between banks and corporate significantly impacts the value of the underlying asset and by the time banks manage to initiate recovery process, there wouldn’t be much to recover.

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