Indian banks are up for an uphill battle when it comes to recovering money from defaulters in a post-pandemic world. Look no further than the recent recovery of the country’s largest lender, State Bank of India (SBI).
SBI recoveries and updates fell 21% year-over-year in the first half of fiscal 21. Additionally, recoveries from past canceled accounts fell more than 40%. As such, these recoveries have been historically low. Banks trigger recovery efforts not only for bad loans, but also for bad loans that have long been written off as worthless.
SBI, being the largest lender, has not only the balance sheet to get money back, but also one of the strongest stressed asset management processes. Their public sector peers generally seek guidance from SBI in stress management. Ergo, SBI’s low recovery numbers spell trouble. To be sure, the bank’s management has indicated that recoveries would increase as economic conditions begin to improve. That said, businesses, especially small businesses, will take a long time to recover. Remember that much of the potential stress will not be visible on bank balance sheets due to the leniency of the Reserve Bank of India (RBI) and government credit guarantee support to businesses. For SBI, the low visibility of bad loans is a challenge even when recovery efforts need a boost.
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