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For SBI, low visibility on bad loans is a challenge even as recovery efforts need a boost. (PTI)
For SBI, low visibility on bad loans is a challenge even as recovery efforts need a boost. (PTI)

A tough battle in store for lenders

SBI’s recoveries and upgrades fell 21% y-o-y in H1 FY21. Recoveries from past written-off accounts dropped 40%

India’s banks are up for a tough battle when it comes to getting back money from defaulters in the post-pandemic world. One does not need to look beyond the recent recovery of the country’s biggest lender, State Bank of India.

State Bank of India’s recoveries and upgrades dropped 21% year-on-year in the first half of financial year 2021. What’s more, recoveries from the past written-off accounts dropped over 40%.

As such, these recoveries have been low. Banks usually trigger recovery efforts not just for bad loans, but also for those bad loans that have long been written off as hopeless.

Being the biggest lender, State Bank of India not only has the balance sheet to recover money, but also has one of the most robust stressed asset management process.

State Bank of India’s public sector peers typically look up to it for guidance in stress management.

As such, SBI’s low recovery numbers spell trouble. The bank’s management has, however, indicated that recoveries would increase as economic conditions start improving.

That said, companies, especially small businesses, will take a long time to bounce back.

Note that much of the potential stress will not be visible on bank balance sheets because of forbearance by the Reserve Bank of India (RBI) and the government’s credit guarantee support to companies.

For State Bank of India, low visibility on bad loans is a challenge even as recovery efforts need a boost.

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