Bad loans worth Rs 30,000 crore up for grabs

Tags: News

RBI window gets PSU banks busy cleaning up NPAs

Public sector banks have put up close to Rs 30,000 crore of bad loans for sale, making it a record. A third of these loans amounting to Rs 10,000 crore have already been sold, while the remaining are waiting to be sold to asset reconstruction companies (ARCs).

Banks had only showcased Rs 9,000 crore worth of bad loans during the last financial year, of which only 10 per cent were sold to ARCs. ARCs are specialists in recovery, licensed by the Reserve Bank of India, and buy bad loans from banks at a discount and recover them from borrowers.

Soundara Kumar, deputy managing director in charge of stressed assets at State Bank of India, said, “We have identified about Rs 3,000 crore worth of assets, which we are showcasing to the ARCs. This is a mix of loan accounts from SMEs, companies and retail portfolios.”

On February 26, RBI notified banks that they could reverse the excess provision on sale of NPAs if the sale was for a value higher than the NBV (net book value) to their P&L accounts in the year the amounts were received. Further, as an incentive for early sale of NPAs, banks could spread over any shortfall, if the sale value was lower than the NBV, over a period of two years. This facility of spreading over the shortfall would, however, be available for NPAs sold up to March 31, 2015 and would be subject to necessary disclosures in the notes to account in the annual financial statements of banks.

P Rudran, chief executive officer and managing director of Arcil, the biggest ARC formed by banks in India said, “With RBI simplifying the procedures for asset sales, banks have become more forthcoming in putting up loans for sale. We have seen about Rs 22,000 crore worth of loans, shortlisted by banks for sale.”

As per finance ministry norms, PSU banks have to invite bids for their bad assets and sell them through a transparent auction process to ARCs, financial institutions or other banks. RBI is also encouraging early sale of loans by allowing banks to sell their assets without the initial holding time and the buying institution or banks having to hold it in their books only for one year, unlike the current requirement of the purchasing banks having to hold it on their books for 15 years.

Birendra Kumar, chief executive officer and managing director of International Asset Reconstruction Company, another Mumbai-based ARC, said, “There are about Rs 30,000 crore of loans from public sector banks – mostly from SMEs, corporate portfolios and small amounts from retail loan books of banks. The previous financial year had seen only Rs 9,000 crore worth of loans for sale, of which only 10 per cent got sold. Private banks are more into bilateral deals rather than coming into auctions.”

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