Public sector banks to sell Rs 2,000 crore of bad loans to asset reconstruction companies

A clutch of public sector banks, including the country's largest lender State Bank of India, is trying to sell about Rs 2,000 crore of bad loans to asset reconstruction companies, reflecting mounting pressure from stressed assets.

People with knowledge of the matter said UCO Bank wants to offload Rs 1,000 crore of outstanding loans, while State Bank of Hyderabad has already called an auction for Rs 700 crore. Also on the list are Canara Bank and State Bank of India, though they are selling a smaller portfolio of sticky loans. This is the first time in a decade that banks are eager to sell stressed loans in the beginning of the year. Until now, lenders were selling bad loans only in last quarter to clean their balance sheets. The gross non-performing assets, or bad loans prior to making provisions, for calendar year 2013 stood at Rs 2,43,210 crore, up 35% on a y-o-y basis.

Some analysts say lenders want to benefit from the one-time dispensation given by the Reserve Bank of India on sale of such loans. The RBI had said in February that if banks sell assets to ARCs below the net book value, losses incurred due to this could be amortised over two years. The offer is until March 2015. "This move is likely to encourage banks to sell assets when there is a value in it," Siby Antony, managing director and chief executive at Edelweiss ARC, told ET. "So far, only vintage assets were sold when the only resolution with ARCs was asset stripping." Another factor encouraging banks to offload bad assets is the RBI view that ARCs should be construed as a supportive system for stressed assets rather than the last resort to dispose of NPAs.

ARCs, on the other hand, are working towards resolution of loans acquired from banks. ARCs will have to demonstrate their capabilities, else banks that have reposed confidence in them will not come back to sell stressed assets, said P Rudran, MD and CEO, Asset Reconstruction Company of India, popularly known as Arcil.

"All recovery efforts will be in consultation with the selling bank because they may give inputs that we may not be aware of at the time of due-diligence of the account or resolution of account." Banks sold Rs50,000 crore of outstanding bad loans to ARCs in 2013-14, compared with Rs 12,500 crore a year ago.



Source: Economic Times