Mumbai: State Bank of India (SBI) on Tuesday said it would allow one-time settlements for tractor and farm equipment loans that make up about Rs6,000 crore of doubtful and loss cases on its books.
SBI is willing to take an up to 40% haircut on such farm loans, said Rajnish Kumar, managing director (national banking) at State Bank of India. “From time to time, we open up the OTS (one-time settlement) scheme for certain segments of our customers to boost our recovery rate. That is what the aim is here,” Kumar said.
The offer would be applicable for loans up to Rs25 lakh, Kumar said, adding that customers can approach the lender up to 31 March for the settlement. He said SBI will also allow these borrowers to settle their crop loans but individual crop loan borrowers are not part of the scheme.
The decision to focus on loan recovery has been taken in view of the large amount of gross non-performing assets (NPAs) that India’s largest lender has accumulated on its books over the last few quarters. Gross NPAs as on 31 December were reported at Rs1.08 trillion, up from Rs72,792 crore a year earlier. In the July-September quarter, SBI reported gross bad loans worth Rs 1.05 trillion. However, the bank has seen a reduction in the generation of fresh bad loans in the last two quarters.
SBI’s upgrades and recovery during the October-December quarter stood at Rs20,620 crore, nearly double of the Rs10,370 crore reported a year earlier. In the July-September period, the bank reported recoveries and upgradation of loans worth Rs15,550 crore.
“Other customers can also approach the bank for settlement of their loans, though that will be taken up through the usual route outside of this special scheme,” Kumar said.
In 2015, SBI had opened a one-time settlement scheme for its retail, wholesale and small and medium enterprise (SME) borrowers, which led to bad loan recovery worth Rs800-850 crore from the segment.
While campaigning for the Uttar Pradesh elections, the Bharatiya Janata Party (BJP) had promised waiver of farmer loans, among other things.
The previous United Progressive Alliance (UPA) government had undertaken a major farmer loan waiver ahead of the 2009 Lok Sabha elections.
Many senior Reserve Bank of India (RBI) officials have stated their opposition to loan waivers as it hurts the credit culture and imposes immense pressure on the banking system.
However, Kumar said, “our scheme has no relation with any government announcement. It is taken by the bank as a business decision.”
SBI’s ability to recover loans from smaller borrowers will be key in signalling the banking industry’s ability to make serious recoveries before the close of this financial year. The banking system has been struggling with closing large corporate cases where various modes of recovery have yielded fewer encouraging results.
As on 31 December, 41 listed banks had gross NPAs worth over Rs7 trillion.
“A lot of troubled accounts end up going into the write off accounts. So this is something that needs to be done. We need to see how many customers actually to take it up and repay their loans,” said Siddharth Purohit, banking analyst at Angel Broking.