The RCom-Ericsson case is a one-off in banking sector’s NPA crisis

Indian banks are famous for dragging their feet in taking decisions over soured loans. In the past, they had the full support of their regulator, the Reserve Bank of India (RBI), although that backing has waned in recent years.

Still, old habits die hard. State Bank of India chairman Rajnish Kumar said last week that lenders to Jet Airways (India) Ltd would make every effort to keep the airline from slipping into bankruptcy, as it would further erode the company’s value. Such an approach is fraught with risks.

What’s more, this was soon after an operational creditor, Ericsson AB, won a case in the Supreme Court that made Reliance Communications Ltd (RCom) pay it nearly half of what it was owed. This left banks red-faced, as Ericsson, an unsecured creditor, moved from being among the last in the queue for recovery, to first.