Media reports indicate that several public sector banks (PSBs) are taking steps to recover loan amount from defaulting corporate borrowers by publishing their names and thereby denting their image.
This move by state-run banks is a remarkable shift from their traditional approach of going soft with defaulting borrowers.
The move is understandable given the pressure these banks are getting from Reserve Bank of India (RBI) and the union finance ministry to recover bad loans.
Two months ago, Finance Minister P Chidambaram asked state banks to move against rich “promoters” to recover loans from failing companies. Even RBI called for better management of bad debts, and wants to strengthen oversight by lenders.
Banks in the country tried to recover on $10.9 billion in bad loans but managed just a quarter of that through liquidation and lawsuits in the year ended March 2012, the latest data from the central bank shows.
Banks are particularly needled by business chiefs who sit on huge personal fortunes, but whose companies fail to repay loans.
Banks may recover bad loans through several ways like seizing and selling assets, taking borrowers to court, selling loans to investors, and beef up debt recovery teams, although a slow-moving legal system and the lack of a bankruptcy process limit their effectiveness.
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