Bloomberg Equality Summit: Largest India Bank Seeks Rule Changes to Take on Bad Debt Pile

(Bloomberg) -- State Bank of India, the nation’s largest lender by assets, is seeking changes to the three-year-old bankruptcy law to take on the world’s worst bad debt pile.

Of the nation’s 12 largest delinquent borrowers including Essar Steel India Ltd. and Bhushan Power & Steel Ltd. which were pushed into bankruptcy process in 2017, only about half have been resolved so far, data compiled by Bloomberg shows. On Tuesday, the country’s top court deferred hearing Essar Steel insolvency case to the next week.

The delays in resolving soured debt undermine India’s efforts to revive economic growth that has cooled to a six-year low. Prolonged court battles for resolutions have slowed recovery for lenders and are hurting their ability to revive lending to kick-start economic growth.

Read Andy Mukherjee’s view on how distorted debt ruling risks damage for India

“There may be some more changes that may be required,” State Bank of India Chairman Rajnish Kumar said at Bloomberg Equality Summit in Mumbai, without providing details. “Once the Supreme Court decides on the Essar Steel case, I think many of the issues which are leading to litigation will get addressed.”

SBI has loans of about 1.38 trillion rupees to companies that are in the bankruptcy process, filings show. Distribution of proceeds from bankruptcy between secured and unsecured creditors and time-line for resolution process are among issues which the Supreme Court may decide on while passing a verdict on Essar Steel resolution.

Here are the other comments from Kumar, which have been edited and condensed:

• There is a sharp decline in the use of sanctioned working capital limits from banks. From the approved working capital lines to large and medium-sized companies, the utilization still averages around 31%.
• India’s co-operative banks are facing corporate governance issues. Many of their governance practices are still not up to the mark.
• Banks are moving toward cash flow based lending from collateral-based lending.

©2019 Bloomberg L.P.