Union Bank solution for bad debt management attracts rival banks

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Bombay : The state-run Union Bank of India is considering a massive push to clean up troubled assets through a bad debt management scheme that has attracted interest from rival banks, including those in the private sector, General Manager A. Manimekhalai said in an interview.

Saras, an acronym for Automated Stressed Asset Recovery Solution, was developed in-house with the help of an external vendor.

While the bank’s in-house team worked on the design of the system, a Chennai-based company developed the software. So far, the bank has made presentations to the Financial Services Department of the Ministry of Finance, the Association of Indian Banks (IBA) and the Reserve Bank of India (RBI).

“State Bank of India, Bank of Baroda, Punjab National Bank and even HDFC Bank are interested in this struggling asset management scheme,” said Manimekhalai, who joined the bank as managing director on June 3.

The bank’s bad debts, at 10.22% of all advances in the June quarter, although lower than previous quarters, are still higher than those of its rivals.

Manimekhalai said the bank plans to bring it down to at least 9% through an aggressive recovery, coupled with a push for credit growth.

A slowdown in credit growth in recent quarters, she said, has led to an inflated impaired loan ratio despite strong recoveries. In FY23, the bank set a goal of recovering bad debts worth approximately 15,000 crore.

The Non-Performing Asset (NPA) management tool has 18 modules, four of which are already available. Once an account becomes non-performing, until the resolution is complete, the system will keep track of everything, send reminders to attorneys about upcoming court appearances, and progress reports to upper management. Additionally, the tool is integrated with 11 external websites including National Company Law Tribunal, Debt Recovery Tribunal, Supreme Court of India, Insolvency and Bankruptcy Board of India and Registrar of Companies.

“As soon as a decision is made and uploaded to these websites, the bank receives an alert at the central office. It will speed up the decision-making process,” she said, adding that the bank also plans to assess the performance of the constituted defenders through this.

A deputy general manager of Union Bank’s legal department is the project manager and leads a team of 10 bankers. While the bank previously hoped to launch this system by June 30, integration with the provider took a little longer than expected, she said. However, four modules are already live and three more will be by July 31, and the bank expects the entire system to be available to users by September 30.

“Even the postal service is linked to this. Once the bank sends a registered mail to a defaulter, it is tracked on the system and the customer cannot say they did not receive it,” Manimekhalai said.

The bank hopes that when other major lenders also implement a similar solution, lending syndicate decisions will be made faster than they usually are. In the next stage of development, the bank plans to add artificial intelligence to the system to identify recovery patterns from the stressed asset data it generates.

With most banks facing strain in their restructured loans, the recovery of distressed assets is expected to take center stage in the coming months with the end of the covid-era loan moratoriums. RBI has warned that banks need to be alert to the credit behavior of restructured advances and the possibility of increased slippages resulting from sectors relatively more exposed to the pandemic.

“Cautiousness warrants proactive recognition of all non-viable accounts to enable rapid resolution,” he said in his 2021-22 annual report released in May.

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