‘To improve loan recovery rate, banks should exercise caution’
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As concerns over growth looms large, an ongoing study conducted by the National Institute of Bank Management (NIBM) points out that banks should exercise more caution while lending as recovery of both corporate and retail loans is below par. The study notes that 53 per cent of default of at least 10 private and public sector banks was unrecoverable with debt pending for years.
The study, based on the credit and debit entries of the banks, notes that the loss given default (LGD), the money that has become unrecoverable, is more than recoveries. The LGD is more for unsecured loans than secured loans and it was also more where liquidity of assets offered as guarantee was lesser. In case of secured loans, the LGD was 45.5 per cent and it was 68.3 per cent in case of unsecured loans. The loans in which real-estate property was collateral, the LGD was only 48.7 per cent, while in case of collateral of fixed assets of companies and agriculture property, the LGD was 77 per cent and 66 per cent respectively.
Dr Arindam Bandyopadhyay, Associate Professor, Finance, NIBM, said that the default position of banks "has been worked out after assessment of their credit and debit position and the portfolio that forms the basis of inference is not only the corporate loans but the rental loans in housing and realty sectors as well. "We have studied the credit and debit entries of major banks and are in the process of receiving the records about other banks," said Bandyopadhyay. "We studied 2,000 debt products that are available in the market as part of the study."
Director General of Maratha Chamber of Commerce Industries and Agriculture, Anant Sardeshmukh, said the credit-worthiness of corporates and retail buyers should be the sole criteria for banks to provide loans to avoid defaults. "There is an appetite for credit but since the loan rates are higher as of now the credit-worthy corporates will delay their debt needs," Sardeshmukh added.
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