MUMBAI: Public-sector banks, saddled with bad loans, made record cash recoveries from their nonperforming assets (NPAs) in the June quarter, explaining in part the recent climb in their stocks.
Seventeen banks together recovered ₹39,200 crore in the quarter ended June 30, up from ₹15,400 crore a year ago and ₹23,500 crore in the preceding quarter, data from regulatory filings showed.
A large share of this recovery came from the resolution of the account of Bhushan Steel (BSL) through the National Company Law Tribunal (NCLT).
The Nifty PSU Bank index has climbed about 15% in the past one month.
Tata Steel purchased BSL in May this year, helping a consortium of six banks led by SBI recover around ₹7,500 crore in cash. They also got an equity stake in the company.
However, the jury is still out on whether the tide has turned in favour of the corporate-facing government lenders.
“The current quarter recovery is largely due to a few accounts; so lets not take that as the benchmark and conclude,” Siddharth Purohit, banking analyst with SMC Institutional Equities, told ET in an email.
“The said account (BSL) had a fairly strong operating plant and hence drew strong bidding with limited haircut to banks. But the relatively smaller accounts might not draw similar interest,” he added.
Besides NCLT, banks have also been aggressively pushing for other means of recovery, such as one-time settlements or sale of NPAs to asset reconstruction companies (ARC). ARCs buy bad loans from banks at a price much lower than their book value.
However, despite a spurt in these alternative channels of resolution, NCLT still remains the key.
“The NCLT 1 and NCLT 2 accounts together are worth around ₹5 lakh crore, or half of the total NPAs in the system,” said Karthik Srinivasan, head of financial sector ratings at ICRA. “So, while the number of accounts resolved through other channels may be high but at the end of the day, in terms of absolute value (of recovery made) NCLT will be higher.”
All indicators point to the fact that even if recovery rates decline in the subsequent quarters, the absolute recovery this fiscal year will mean a large improvement over the last.
“It can be said that overall recovery and upgradation will be better than last year,” Purohit said.