Non-performing assets (NPAs) in the banking system are estimated to have doubled to more

RELATED ARTICLES Canara Bank net decline 17% at Rs 3,341.69 in FY12 Mamata red flag puts off pension bill Andhra Bank Q4 net rises 8.6% to Rs 340 cr

than Rs 1,00,000 crore at the end of the financial year 2009-10, said Fitch, a rating agency.

The rise in bad loans and the acute need for capital is forcing asset reconstruction companies (ARCs) to approach the Reserve Bank of India (RBI) to raise the limit of foreign institutional investments in security receipts issued by ARCs from 49 per cent to 74 per cent to increase flow of funds into the system.

“We expect gross NPAs to double from Rs 68,000 crore by 2010-11 as it is expected that there will be fresh slippages, and many corporate restructured accounts will slip into NPAs by the end of the year. However, after the RBI increasing the provisioning coverage ratio to 70 per cent, net NPA levels may continue to stay around 1.1 per cent of total advances,” said Ananda Bhaumik, senior director of Fitch Ratings, at the FICCI Asset Reconstruction Forum.

According to bankers, there will be a rise in bad loans from sectors such as steel, textiles, airline, real estate and small and medium enterprises. Textiles sector, which depends on overseas demand, is seeing a continuous fall in orders from European markets due to the crisis in Greece and Spain, and the US market is yet recover. Airline sector, which was hoping to raise money from equity markets, will find the going tough due to market volatility.

“We need a lot of capital to contract deals with banks and most of the transactions are cash deals as banks are reluctant to invest in security receipts. And if bad loans are going to rise, it means that more loans will get auctioned and we would not like to miss out on the opportunity,” said Birendra Kumar, MD and CEO of International Asset Reconstruction Company.

In 2009-10, banks had auctioned Rs 5,000 crore of bad loans but ARCs bought only about Rs 2,000 crore due to valuation issues.

“We expect more bad loans to be auctioned by banks this year because as bad loans pile up they will want to write off NPAs. But the opaqueness in disclosing information on bad loans is causing a lot of problems while buying assets from banks. Often there is no record of loans, which results in confusion,” said the head of a leading ARC.