India’s bad loan problem is much bigger than Vijay Mallya. Public sector banks have a tough task at hand recovering money tied up in non-performing loans, according to the latest data. Even as Indian authorities seem intent on bringing back the entrepreneur from the United Kingdom, where he fled to in March 2016, and make him pay the Rs 9,000 crores in loans he owes multiple banks, a large number of public sector banks are now approaching courts to obtain recovery notices against defaulting companies.

Data analysed by showed that the number of suits filed by banks against willful defaulters has more than doubled since December 2013, when then Reserve Bank of India Governor Raghuram Rajan had pushed for a clean-up of the bank balance sheet. As of March this year, there were 8,215 cases pending in courts for willful defaults amounting to Rs 1 lakh crore. More than 83% of these cases were filed by public sector banks – their numbers having steadily risen from 3,500 cases in March 2014 to close to 7,000 cases in March 2017, according to the Credit Information Bureau of India’s data.

However, this is not the complete story of India’s bad loan problem. The proportion of cases in which banks have moved court is tiny compared to the total declared non-performing assets, which stood at Rs Rs 7.6 lakh crores this March.

Since then, the Reserve Bank has forced banks to report actual non-performing assets as assessed by the central bank, which has brought a huge divergence to light. For instance, it was discovered that Yes Bank, the country’s seventh largest lender, under-reported its non-performing assets and the actual NPAs were found to be 557.6% higher than what it stated in its annual report last year.

What this means is that more loans than anticipated are turning bad. India Ratings expects another Rs 2.6 lakh crores to slip into bad debts in the next year or so, the ratings agency said in a release last month.

“As per Ind-Ra analysis Indian banks are sitting on unrecognised stressed loans worth of Rs 7.7 trillion,” the agency stated, adding that divergence revealed by banks recently will add to the pile of bad loans in the coming months.

Rush to recover

This is perhaps why public sector banks are hard-pressed to find a solution to the bad loan problem quickly. With more loans expected to turn bad at a time when the growth of bank lending is at its lowest in six decades, banks are going all out to recover whatever money they can.

The State Bank of India, which merged with its five associate banks on April 1, has filed more cases than all private sector banks combined. The bank and its associates had filed 1,705 suits by March compared to 1,229 cases by all private sector banks. This could be because of the sheer size of the bank’s lending book in the country. However, Pallav Mohapatra, deputy managing director of the State Bank of India’s stressed assets management group, insisted the bank’s balance sheet was healthy and its non-performing assets, at 6.4%, were below the sector average of 9.3%.

However, it was also reported that post-merger, the non-performing assets of the five associate banks soared to 9.1% at the end of the June quarter from 5.9% in the March quarter.

Mohapatra reasoned that public sector banks, including the State Bank of India, have been forced to take hard measures since softer ones were not working well enough. Hard measures include civil lawsuits and auctions while soft measures usually include offering a moratorium on interest payments.

“It is not just because of the clean-up forced by the RBI,” Mohapatra said. “We are realising that if we cannot receive full amount on a Rs 100-loan, then we are taking Rs 60 and converting Rs 40 into equity hoping that it will turn around.”

A banking analyst, speaking on condition of anonymity, said public sector banks will be the ones most affected by bad loans as a result of leaky processes. “Their underwriting is not the best in the industry. Sometimes, many other considerations are put in place rather than fitness of the borrower, which has led to some of this bad debt pile,” the analyst said. “Otherwise too, public sector banks are now becoming proactive in filing cases as compared to their lethargy earlier, but private sector banks have at least been watchful.”