| Banks step up sale of bad debt | |
| Namrata Acharya / Kolkata February 11, 2009, 0:41 IST | |
As the financial year draws to a close, public sector banks have started shedding non-performing assets (NPAs) through sale to asset reconstruction companies (ARCs) and enforcement of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests (SARFAESI) Act.
UCO Bank, United Bank of India (UBI), Syndicate Bank and Allahabad Bank are planning to sell a major chunk of NPAs in the present quarter.
A majority of the NPAs are four to five years old and have already been written-off from the bank’s accounts and provided for in the balance sheet. As a result, banks would be able to book profits on at least a part of the proceeds realised through the sale of these assets.
Banks have the option to reinvest through security receipts (SRs) in the ARCs or they can choose to go in for a cash deal. Typically, stressed assets or bad debt is sold at a steep discount even to the written-down value.
S Khasnobis, managing director of Asset Reconstruction Company India (Arcil) — the country’s largest ARC — recently said that banks are expected to make cash sales worth Rs 1,000 crore by March 2009. With the Reserve Bank of India allowing lenders to classify loans as “standard assets” despite a second restructuring, the market for NPAs sale would be affected.
Many banks would prefer to extend the repayment period, provide additional support, lower interest rates, give a moratorium or go for a mix of restructuring options, bankers said.
United Bank of India (UBI) is also planning to sell NPAs worth Rs 200-300 crore in the current quarter. “This year, we are selling more NPAs than last year. We have initiated the bidding process. Most of the accounts are at the retail level, which are over five years old, and already provided for in our balance sheet,” said UBI Executive Director T M Bhasin.
At present, UBI’s net NPAs are estimated at 2 per cent of advances and the bank hopes to lower it by half a percentage point by the year-end. Similarly, Allahabad Bank has identified about 31 accounts, mostly large corporates, for sale during this quarter.
The total amount of such assets would be Rs 373 crore, Allahabad Bank Chairman and Managing Director K R Kamath said.
Syndicate Bank is also planning to sell bad debt worth Rs 300 crore that are essentially related to loans given to companies in the past.
These assets have been fully provided for. The sale would take place through a mix of SRs and cash deals, said the bank’s Chairman and Managing Director George Joseph. In addition, the bank will create a separate portfolio for retail NPAs.
Banks are also using the SARFAESI Act, through public notices for securitisation, and restructuring accounts to shed the NPAs. “It is often seen that as soon as the names of the defaulters are put out in the public domain, most of them come forward for settlement,” a Uco Bank executive said.
According to an UBI executive, which managed to keep a build-up of NPAs under check in the third quarter, though the bank was open to the sale of assets to ARCs, it would prefer to press for recovery in majority of the cases.
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