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MUMBAI : State-run Union Bank of India is looking at a massive push to clean up stressed assets through a bad loan management system that has drawn interest from rival banks, including those in the private sector, chief executive A. Manimekhalai said in an interview.

Saras, an acronym for stressed asset recovery automated solution, has been developed in-house with the help of an external vendor.

While the bank’s internal team has worked on designing the system, a Chennai-based company has developed the software. So far, the bank has made presentations to the financial services department of the finance ministry, the Indian Banks’ Association (IBA), and the Reserve Bank of India (RBI).

“State Bank of India, Bank of Baroda, Punjab National Bank and even HDFC Bank are interested in this stressed asset management system," said Manimekhalai, who joined the bank as chief executive officer on 3 June.

The bank’s bad loans, at 10.22% of all advances in the June quarter, though lower than the previous quarters, are still higher than its rivals.

Manimekhalai said the bank plans to bring it down to at least 9% through aggressive recovery, coupled with a push for credit growth.

A slowdown in credit growth in the recent quarters, she said, had led to an inflated bad loan ratio despite sizeable recoveries. In FY23, the bank set a target to recover bad loans worth about 15,000 crore.

The non-performing asset (NPA) management tool has 18 modules, four of which are already available. Once an account turns non-performing, until the resolution is complete, the system will keep track of everything, send reminders to advocates on upcoming appearances, and progress reports to the top management. In addition, the tool is being integrated with 11 external websites, including the National Company Law Tribunal, Debt Recovery Tribunal, the Supreme Court of India, Insolvency and Bankruptcy Board of India, and the Registrar of Companies.

“The moment any decision happens, and it gets uploaded on these websites, the bank will get an alert in the central office. This will quicken the decision-making process," she said, adding that the bank also plans to appraise the performance of empanelled advocates through this.

A deputy general manager from Union Bank’s legal department is the project manager in charge of this and heads a team of 10 bankers. While the bank earlier hoped to launch this system by 30 June, it took a bit longer than expected to integrate with the vendor, she said. However, four modules are already live, and three more will be live by 31 July, and the bank expects the entire system to be available for users by 30 September.

“Even the postal department is linked to this. Once the bank sends a registered post to a defaulter, it gets tracked on the system, and the customer cannot say he/she has not received it," Manimekhalai said.

The bank is hopeful that when other large lenders also implement a similar solution, decisions in loan consortiums will be made faster than they usually are. In the next stage of development, the bank plans to add artificial intelligence to the system to identify recovery patterns from the stressed asset data it generates.

With most banks seeing stress in their restructured loans, recovery of stressed assets is likely to take centre stage in the coming months as covid-era loan moratoriums end. RBI has warned that banks need to be watchful of the credit behaviour of the restructured advances and the possibility of increased slippages arising from sectors that were relatively more exposed to the pandemic.

“Prudence warrants proactive recognition of any non-viable accounts to activate timely resolution," it had said in its 2021-22 annual report released in May.

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