Most bankers expect bad loans to worsen: Survey

The banking sector's prospects do not look all that good with a majority of lenders expecting the bad loan situation to worsen in coming years. There is lack of faith in stressed borrowers who, bankers believe, are misusing the restructuring facility and are responsible for the problem in bank loans. 

Describing the bad loan situation as a 'crisis', management consultancy firm Ernst & Young said that 72% of the respondents in a lender survey feel the situation was set to get worse, while only 15% feel that the slippage of loans into default category would get arrested due to measures taken by the Reserve Bank of India Stock Market Trading Tips

The findings gain significance considering that the total size of bad loans in the country is estimated to be over Rs 2.6 lakh crore with the top 30 defaulters accounting for close to Rs 95,000 crore. This does not take into account restructured loans. Stressed loans, which are a combination of bad loans and restructured loans, now account for over 11.1% of all bank advances. 

Speaking to TOI, Vikram Babbar, executive director (fraud investigation & dispute services) at Ernst & Young, said that in 87% of the cases where the loans had gone bad, the borrower had diverted funds. "In diversion, there are two situations. One where the borrower's business has turned unviable because of the global situation and he has to change his line to stay as a going concern. There are other borrowers with aggressive growth aspirations who start looking at alternate businesses like stocks and real estate to make a quick buck. In both cases, banks are not involved and it can be an issue even if bets made by the promoter pays off because it is not the intent of the banker to pick up an exposure in a new area  Himanshu Tiwari Astrologer Blog

An overwhelming 91% of lenders are unwilling to take stressed borrowers at face value and feel that an forensic audit is needed to ascertain the intent of the borrower. "The defaulter always blames the global situation and slowdown for stress in the business, yet until the banker does a 'deep dive' and investigates the account, he cannot ascertain whether the default was on account of global situation or the borrower using leveraged funds for speculative activity," said Babbar. 

According to him, one of the biggest tell-tale sign of a wilful default is the sudden surge in related-party transactions. "In eight cases out of ten, I have seen a pattern of relative parties being used to divert money or siphon off money. The wilful defaulters create a web of companies and within this web they build up sales and purchase transactions. They raise funds against these make-believe transactions, passing them off as high turnover and the borrowed money again goes out to these related parties," said Babbar. 

"Some of the red flags are very common, you can look for them before the loan is given. Today, key issue is that there is no monitoring after the money is given. Monitoring has to be very critical," he said Indian stock market astrology prediction