Private banks shun ARC route to offload bad assets

Even as the public sector banks have made a beeline to dispose of their bad loans to the asset reconstruction companies (ARCs) in the March quarter, private banks are not only unenthused in adopting this route, but have virtually shunned this.

State-run banks, which are sitting on a mountain of bad loans, have sold as much as over Rs 10,000 crore to ARCs in the March quarter, led by State Bank's close to Rs 4,000 crore asset sale, a first for the nation's largest lender in its over 200-year history. In the December quarter, SBI had reported a gross NPA of 5.3% or Rs 67,800 crore.

As against this, its largest private sector counterpart ICICI Bank had a gross NPA ratio of 3.03% in the three months to March, but sold not a single penny to ARCs, its managing director and chief executive Chanda Kochhar said.

HDFC Bank deputy managing director Paresh Sukthankar said the bank's sale to ARCs was around Rs 6 crore, which is "nothing meaningful", while Yes Bank sold Rs 12 crore.

For Axis Bank, the third largest private sector lender, the sale to ARCs during the March period, which generally witnesses such sales, was minimal, according to its management.

In stark contrast, the state-run lenders have reportedly sold over Rs 10,000 crore of assets to the ARCs in March alone, due to a variety of reasons, including a push by their majority owners.

This may be partly due to the higher proportion of non-performing loans which the state-run banks carry.

According to rating agency Icra, the gross NPAs ratio for the country's 40 listed banks stood at 4.1% as of December 2013.

As per RBI estimates, the same for the entire system as a whole had stood at 4.2% as of September 2013 and it expected the same to go up to 4.6% by September 2014 and then improve a bit to 4.4% by March 2015.

Within that, the RBI said the state-run banks will be the worst affected. The public sector banks' NPAs will be at 4.9% by March 2015 while the same for the private sector is projected at 2.7%.

Meanwhile, some experts also question if the quality of the securities which the banks carry against a loan have a role to play in this trend. Generally it is assumed that private banks are much more diligent while granting a loan and insist on better quality collaterals before disbursing, which a public sector lender may lack.