Why $190 bn bank loan clean-up is the only way to revive India’s growth

So far, lenders have recovered the equivalent of about $11 billion, or about 43 per cent, of the $25 billion in dues admitted by courts in 94 cases of default, according to a Crisil report

forms meant to clean up $190 billion of stressed bank loans will be crucial to reviving economic growth during Narendra Modi’s second term as prime minister. Just days after a landslide electoral victory, Modi is being forced to focus on the economy after the slowest expansion in five years. A crisis among shadow lenders has curbed advances from the sector and hit consumer spending in recent months, coming on top of years of sluggish credit growth at banks hamstrung by non-performing loans. Revitalising lenders is essential to jump-starting private investments and consumer spending.

Investors expect Narendra Modi to complete reforms started during his first term when India instituted a time-bound bankruptcy process, putting the business community on notice by stripping assets off the biggest defaulters and selling them. While the two-and-a-half-year-old law has helped banks improve the rate and pace of bad-debt recovery, prolonged court battles have delayed transactions and deterred some foreign investors.

“We have to find a way to speed up the process,” said Rajnish Kumar, chairman of State Bank of India Ltd., India’s largest bank. “The results so far — despite the delays — have been good for the system,” he said in a recent interview, adding that the bankruptcy law needs to be periodically reviewed. As of March, about a third of India’s bankruptcy cases had exceeded the 270-day deadline stipulated by law, according to government data.

In fact, of 12 large debtors — the so-called dirty dozen — that were pushed into bankruptcy courts in 2017 by the banking regulator, only five have been successfully sold with lenders recovering about 39 per cent of dues on average. The rest have been delayed by problems including a slew of challenges by previous owners, losing bidders, financial and operational creditors. Potential bidders have also become wary of India’s evolving insolvency process after court rulings in the past year allowed late bids to be considered in the interest of greater recovery…