Public sector banks may have turned a corner as far as fresh stress on loans goes but they have a long way to go in terms of making errant borrowers pay up.

Lenders owned by the government saw their slippages reduce by 45% in FY19. Borrowers who have dues pending for more than 30 days also seem to have begun clearing them. Special mention accounts (SMA), an indicator of this has fallen 63% for lenders.

These were highlighted by Finance Minister Nirmala Sitharaman to a houseful of lawmakers on Monday.

Investors are already rejoicing the fact, visible in the 13% rise in the Nifty Bank index since January.

But it would be better if investors and lawmakers tamped down on their optimism a bit.

Granted, lenders have managed to reduce stress and have begun the slow process of chipping away at the colossal pile of 9 trillion worth of toxic loans. But this is just the beginning and to make a severe dent on that toxic pile will take more efforts.

For that, recoveries have to really ramp up.

Recoveries amounted to 1.23 trillion in FY19 for public sector lenders while write-offs totalled 1.97 trillion.

This does not say much about recovering skills of lenders but indicates banks are willing to just give up on future recoveries and write off the whole exposure.

To be fair, recoveries in FY19 are the highest in a long time for public sector banks. Part of the reason has been the additional heft given to lenders by insolvency code.

Even so, delays there are making recoveries difficult for banks.

My Reads Logout