The banking industry may end up reaping a Rs 34,000-crore (Rs 340 billion) windfall over the next three years, by enforcing the recovery law.
The gross non-performing assets (NPAs) of all scheduled commercial banks stood at Rs 70,904 crore (Rs 709.04 billion) on March 31, 2002, up from Rs 63,741 crore (Rs 637.41 billion) in the previous year.
If one adds the gross NPAs of two financial institutions, the Industrial Development Bank of India (IDBI) and IFCI, the figure would be in the region of Rs 80,000 crore (Rs 800 billion).
An optimistic industry analysis has pegged the amount expected to be recovered at around Rs 34,000 crore (Rs 340 billion) under the new norms. However, to achieve this, the banking industry would take at least three years, a senior banker said.
Roughly 50 per cent of the NPAs belong to the small and the medium sectors, while the small and large borrowers account for 25 per cent each.
"The banking industry expects virtually nothing from the large segment. From the small segment, the recovery can be about 20 per cent or Rs 4,000 crore (Rs 40 billion). But the recovery from the small and medium segments can be as much as 75 per cent or Rs 30,000 crore (Rs 300 billion). That takes the recovery to Rs 34,000 crore (Rs 340 billion). It will take about three years for the industry to recover this money," said the senior banker.
This is three times the collective annual net profit of the banking industry. All scheduled commercial banks posted a net profit of Rs 11,572 crore (Rs 115.72 billion) in the year ended March 2002.
The recovery process, however, will not be a cakewalk. Even though no borrower can legally challenge the banks' right to seize and sell assets, there can be legal complications on other fronts.
For instance, the valuation of an asset and the bidding process can trigger legal cases.
Besides, there could be lack of unanimity among the lenders too.
At least 75 per cent of the lenders are required to support any move to sell the assets of the defaulter.
The net NPAs of the banking industry increased by 9.5 per cent, from Rs 32,461 crore (Rs 324.61 billion) in March 2001 to Rs 35,546 crore (Rs 355.46 billion) in March 2002.
The public sector banking industry accounted for 79.7 per cent or Rs 56,507 crore (Rs 565.07 billion) of the gross NPAs of all scheduled commercial banks.