Banks put Rs16,000 cr bad loans on the block so far: Mumbai, January 19: The Reserve Bank of India’s conciliatory stance on the sale of bad loans to asset reconstruction companies (ARCs) has encouraged many banks to identify a larger chunk of bad loans for sale. RBI, in a draft proposal issued on December 17, floated the idea of banks selling a bad asset early when it has a higher chance of revival rather than holding it in their books as a non-performing asset (NPA). Both private and public sector banks have put about Rs 16,000 crore worth of bad loans on the block to clean up their books so far this financial year. In the fourth quarter, when bunching of bad loan sale offers takes place, banks may push another Rs 10,000 crore of assets for sale. Last financial year, bad loans worth Rs 12,000 crore were put on sale, and a paltry Rs 2,000 crore was sold. These are usually retail loans, credit to small and medium enterprises and corporate loans to mid-sized firms, which have borne the brunt of the economic slowdown. Soundara Kumar, SBI deputy managing director in charge of stressed assets, said, “Many companies are still stressed. We have identified about Rs 2,000 crore assets for sale. By the end of the financial year, we should be able to conclude the sale. We are not doing any bilateral deals and are showcasing these loans to all the 17 ARCs.” ICICI Bank, Bank of India, Bank of Baroda, Indian Overseas Bank, Federal Bank, Allahabad Bank, Punjab National Bank, Uco Bank and Canara Bank are among the players with bad assets for sale. Bad loans worth Rs 5,000 crore have already been sold. R Rudran, CEO and MD of Arcil, the biggest ARC, said, “There is a lot more interest among banks to sell bad loans as the economy continues to slow. This year the offer for sale of bad loans will be higher by at least Rs 10,000 crore and the actual sales will also be considerably higher.” Banks usually give about 5 per cent of the net book value as the cash component while the remaining portion of a loan is converted into a security receipt taken by the bank. Usually, the bank itself is the investor in the security receipt. All Sebi-approved qualified institutional buyers can invest in security receipts. ARCs say in certain cases insurance companies and NBFCs are also investing in security receipts. Shyam Srinivas, CEO and MD of Federal Bank, said in a concall on January 17 that his bank had sold Rs 186 crore to the ARCs during the quarter. Banks hesitate to sell their loans to ARCs because of restrictive guidelines, which say if the sale of financial assets by a bank to ARCs is for a value higher than the net book value (NBV), the excess provisions will not be allowed to be reversed, but the banks will have to utilise it to meet the shortfall or loss on account of sale of other financial assets to a securitisation company or a reconstruction company. And banks have to provide for any shortfall if the sale value is lower than the NBV. However, RBI has mooted a change in the regulation: banks will be allowed to reverse the excess provision on the sale of an NPA, if the sale is for a value higher than the NBV, directly to its profit and loss account in the same financial year. And the loss in a sale below NBV can be spread over two years. A senior banker said, “This is a positive step that will encourage many banks to shed their bad loans. ARCs also ask for discounts and this nixes many sales. This year banks are realising that if they don’t deal with the bad loan pileup aggressively, it may be difficult to manage it within the bank.”
Posted on: Mon, 20 Jan 2014 16:25:24 +0000
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