SBI working on two-pronged strategy to fight bad debts

Arundhati Bhattacharya, chairperson of State Bank of India (SBI), is working on a two-pronged strategy to control the growing bad loans at the country's largest lender.

The bank has put in place an operational plan to focus on non-performing assets (NPAs) and is also hiring turnaround specialists to monitor restructured loans to avoid any slippages, say people familiar with the development.

There have been several instances in the recent past where borrowers failed to repay their loans even after lenders put a moratorium on interest and extended the tenor. For instance, banks twice recast their loans to Kingfisher Airlines without any success. The airline has debt of more than Rs 7,000 crore, but banks are unlikely to get their money back.

Bhattacharya, who took over as the bank's first woman chief last year, has declared a war on NPAs. The 57-year-old had previously said that her top priority was to keep NPAs under control. The bank is paying a heavy price for excess lending during the boom period of 2004 to 2008. Its asset quality has been deteriorating for the past couple of years. Its gross NPAs were at 4.75 per cent, or Rs 51,189 crore, and net NPAs at 2.10 per cent, or Rs 21,956 crore, of total advances in 2012/13. In the first nine months (April-to-December) of 2013/14, gross NPAs have climbed to 5.73 per cent (Rs 67,799 crore) while net NPAs have swelled to 3.24 per cent (Rs 37,167 crore).

As part of the operational plan, SBI has created review teams for stressed loans for each region. One of the people aware with the developments says that Bhattacharya herself chairs the meetings to review large loan accounts of more than Rs 500 crore.

To monitor stressed or restructured loans, the bank is engaging turnaround specialists like global professional services firm Alvarez & Marsal. Banks hire these specialists to help the companies under stress to improve their cash flows, cut costs or increase market share.

SBI's outstanding restructured loans are at 4.12 per cent in 2013/14, much higher than the 2.39 per cent at private-sector lender ICICI Bank. Banking industry observers say hiring external experts is a good strategy as SBI does not have the expertise and the resources to monitor stressed accounts spread across sectors and regions.