Veteran banker Aditya Puri today said initiating insolvency proceedings is not the “best solution” to fight the bad loan issue and advocated using the recently introduced law only in cases of wilful default. “As far as going to insolvency courts is concerned, that’s not the best solution. Ideally, we should be able to help him to breath, and only if he is a wilful defaulter we opt for insolvency court,” Puri told the HDFC Bank’s annual general meeting. Puri, managing director of the leading private lender, said his bank has nothing to worry from the RBI-mandated resolution of 12 big defaulters under the Insolvency and Bankruptcy Code (IBC). In an apparent reference to issues faced by bankers in making things work, including Essar Steel’s petition, Puri said all new things have a “teething problems” and hoped everything moves in the “right direction”.
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Without naming Essar Steel, Puri said HDFC Bank had exposure to one of the 12 accounts which was part sold to asset reconstruction companies (ARCs) and the remaining part has been fully provided for as against the RBI mandate to set aside 50 per cent. Later speaking to reporters, Puri said the IBC provisions should be used as the “last resort” and not as a “first thing”. “It is a good thing where a company cannot be turned around you should use insolvency, but that does not mean you take to court every poor fellow who has had an unfortunate circumstance or his business did not work or he needs minor care… you don’t put everyone in the ICU and get a heart transplant.”
Replying to a shareholder query on the sector witnessing maximum stress for the bank, Puri said agriculture is the one segment showing most stress because of demonetisation and farm loan waivers, but called it a temporary “blip”.
“That stress in itself does not mean that we will move towards a bad loan scenario. This is a temporary blip. By and large, agriculturists are honest people and the money will come back to banks.” “At this point of time there is distress which has to be alleviated. Is there going to be some temporary impact on NPAs? Yes, I think the stressed assets will go up but will there be a major impact? No!,” he said. It can be noted that the lender’s Rs 28,000-crore agri book was one of the prime reasons for a spurt in gross non performing assets ratio to 1.24 per cent as at the end of June.
Puri told shareholders that bad assets are bound to happen in the banking business and added that one to 2 per cent should be a tolerable number. He said the advent of digital alternatives has made the bank revisit its bank strategy to fix opening 150 branches per year as the right idea. The bank is also witnessing a downward shift in ATM transactions and is “strategically evaluating” options on what to do, he said. Puri said the inflation trajectory is trending down, hinting that this would be the best time to go for a rate cut by the Reserve Bank.