From the age of 12, Challa Sreenivasulu Setty spent his school vacations collecting debts for his fatherâ€™s grocery store in the small south Indian village of Potlapadu.
It was harvest season, and Setty would go around the villageâ€™s 150 households, recovering money owed by farmers from earlier in the year. He and his brother each had a list of people who owed cash, and would visit them one by one.
â€œMy brother was softer and more popular in the village,â€ Setty recalled. â€œSo his collections were lower than mine.â€
Forty-two years later, Setty continues to collect on loans, albeit on a much larger scale. Heâ€™s one of three managing directors of State Bank of India, a position one rung below the top job at the countryâ€™s biggest lender. One of his tasks is to head recovery of the bankâ€™s $19.6 billion bad-loan pile.
Itâ€™s a tough assignment at the best of times, but now Setty must contend with an economy headed for its first contraction since he was a schoolboy. Indiaâ€™s bad-loan ratio, already the highest among the worldâ€™s biggest economies, is expected to jump after the coronavirus lockdown shuttered businesses and left millions jobless.
Setty said he learned two key lessons collecting debt for his father.
â€œOne, time value: How quickly you can recover money is important,â€ he said in his first media interview since being promoted to managing director in January. â€œSecond, follow up: I cannot stress the importance of this in recovering dues.â€
Setty, who has spent 32 years at SBI, oversees stressed-asset management, which includes responsibility for bad-loan recovery, as well as heading retail and digital banking. â€œWe prefer one-time settlements at SBI over long litigations,â€ Setty said of his first principle. â€œThat way, we can get cash in time.â€
On his second, he said following up with defaulters is especially important â€œin the case of small and medium-sized accounts.â€
So far, about 21 per cent of SBI retail customers and around 10 per cent of its corporate borrowers have opted for the moratorium.
Setty said the recovery outlook is better for retail loans than the corporate book. The soft-spoken banker has already gotten his team to work on his â€œfollow-upâ€ principle.
Instead of outsourcing the job as some Indian banks do, Setty asked SBIâ€™s workers to call more than 100,000 retail customers in the last three months to educate them about the implications of the loan moratorium, making clear it was not a waiver, and urging them to assess their repayment ability.
â€œMost of the retail customers who opted for the moratorium did it to conserve cash due to the uncertainty and not because they didnâ€™t have the ability or intention to repay,â€ Setty said of the feedback from the calls.
This suggests a large portion of the bankâ€™s loans to individuals, worth Rs 7.5 trillion or more than a third of its total book, will hold good, according to Setty. The lenderâ€™s focus on giving loans to salaried customers is paying off, he said. But the corporate book, which accounts for about 41 per cent of the lending business and more than half its bad loans, could be a drag on recoveries after the government banned filing any new cases to the bankruptcy courts until September.
â€œIt is very difficult to state what approach we will takeâ€ on recovering loans from companies, said Setty. â€œAll I can say is it will be a nuanced approach depending upon the situation in respect of each firm.â€
Under Chairman Rajnish Kumar, SBI tightened loan underwriting and monitoring processes over the last two years, according to Setty. The bank closely tracks 98 parameters including share pledges and delays in paying letters of credit, to catch any impending stress in accounts, he said.
SBI doubled its loan recovery rate to about 14 per cent in the period. Still, recoveries might be less this financial year as companies are in genuine difficulty given a plunge in demand, said Setty, who manages an 1,800-person stressed-assets recovery team. The bank will come up with a combination of restructuring, fresh credit lines and one-time settlement offers on a case-by-case basis, he said. â€œThese are unprecedented situations and there is a need to handhold our customers,â€ he said.
Investors have some doubts about the bankâ€™s ability to navigate the current difficulties, if the stock price is any guide.