Suddenly ‘cash surplus’, defaulters rush to settle

Banks are getting an unexpected bonanza from the demonetisation drive.

Small and mid-sized businesses, which had become non-performing loans with promoters defaulting in repayments for the last many months, have suddenly started rushing to banks saying that they now have the money to repay.

A branch manager with a small public sector bank said, “We have got in excess of a couple of crore from our defaulting accounts. These businessmen tell us their vendors are repaying them and now they are cash-surplus so they are clearing off their dues. We have accepted the repayments.”

Banks are expecting such windfalls to come from certain customers, especially the smaller businesses and SMEs who may have hoarded cash by under-invoicing or over-invoicing.

Aggregate NPAs of the banking sector are now at Rs 6,50,000 crore (8.6% of loans) as of June 2016 and an additional Rs 2,60,000 crore (3.5%) are restructured.

Credit Suisse in a report said that they estimate another 4.5% (Rs 3,30,000 crore) of stressed loans are still to be recognised as NPAs.

State Bank of India, which accounts for 15% of the bank credit, last Friday reported gross non-performing assets (NPAs) of Rs 105,783 crore, nearly 100% increase from Rs 56,834 crore in the year-ago period.

Another banker said, “People are not only paying their dues but they are also giving cash credits in their accounts for future payments. So the drive is releasing money that was lying locked up outside the banking channels.”

However, no repayments have come from large corporate borrowers who have substantial  exposure to the banks after the demonitisation drive began.