As the spectre of large-scale delinquencies has come to haunt the banking industry in the high interest rate regime, public sector banks have swung into action to prepare counter-strategies to tackle a possible crisis.
The banks, which have seen pressure on standard assets in recent times, have become proactive in putting in place various systems to identify accounts that could turn NPA. It is based on the premise that no accounts can turn NPA overnight but takes a certain time to turn sticky. The bankers believe, with proper systems, the non-performing assets can be minimised.
Mumbai-based Bank of Baroda has set up in its corporate office a whole new department, headed by a general manager, to look after the bank?s credit monitoring functions. The department, which came into being early this month, will be known as the credit-monitoring department.
?This would certainly enable us to ensure monitoring of loan at any point of time,? said MD Mallya, chairman & managing director, BoB. Carved out of the two earlier existing departments of credit and recovery, the new department will also aim at improving and maintaining the credit quality on a continuous basis.
MV Nair, CMD, Union Bank of India, said his bank has revamped the system of monitoring of NPAs by putting in place a rigorous, three-point checking system to detect and arrest any increase in the size of sticky assets. At each stage, the account is monitored by an officer. Whenever an account becomes an NPA of more than Rs 5 crore, it is referred to the bank?s corporate office. Smaller loans go to the general manager or regional manager-level officials.
?We are getting results from the newly set up system as the delinquency ratio has declined to 1.23% as on March 2008. Though there are possibilities of delinquencies, we are confident of managing them within the limit through our special monitoring mechanism. This year, our target was 1%. But now because of a difficult year, I have kept it between 1% and 1.25%, which is also very good,?? explained Nair.
SA Bhat, CMD of Indian Overseas Bank, said his bank has created a cell which takes care of the ?watchlist accounts? in which any account above Rs 1 crore showing overdues gets detected in a very short span of time and is followed up with more action to check delinquency.
KC Chakrabarty, CMD, Punjab National Bank said the bank would need more manpower to keep a check on possible delinquencies.
?We are also fine-tuning our risk management techniques and keeping a constant watch by efficient follow-up systems,?? he said.
Banks have also been cautious in raising their prime lending rates in many cases. They feel this could trigger greater delinquencies. TS Narayanasami, CMD, Bank of India, said the risks of rising delinquency have prevented state-run banks from raising their PLR to the level of the private banks. Bank of India has realised that the retail borrowers can?t bear the extra burden.
?We have not increased the rates on our home loans of up to Rs 30 lakh to ensure the retail borrowers are not affected by the PLR hike. Instead, we have put an additional burden on our corporate borrowers, who are in a position to bear it,?? he said.
Though accurate data on total bad loans in the retail segment is not available, by Crisil?s rough estimates, the size is at around Rs 15,000 crore (housing and auto loan default) as on March 2008. Crisil has predicted retail defaults would rise by 4% during the current year.