PSU banks queue up to sell bad loans to ARCs in Sept quarter

Public sector banks are queuing up to sell more bad loans to asset reconstruction companies (ARCs) in the July-September quarter of this financial year.

Mangaluru-based Corporation Bank is planning to sell non-performing assets worth Rs 1,000 crore to the asset reconstruction companies, its Chairman and Managing Director SR Bansal said on Monday.

This comes after the lender saw an increase in GNPAs to Rs 7,765 crore as on June-end, which was 5.4 per cent of its total advances from Rs 5,470 crore (3.9 per cent) a year ago. Bansal said the sale process is expected to be completed by the end of the current quarter.

"The bank will continue to sell NPAs in the coming quarters," Bansal said. Corporation Bank reported a net profit of Rs 204 crore during the April-June quarter, which was a decline of 12 per cent as compared to the same period of the previous year.

On the other hand, Union Bank is also planning to sell NPAs worth Rs 1,200 crore in the second quarter of this financial year. Arun Tiwari, chairman and managing director of Union Bank, said he would be selling the loans only if he gets the right price for it.

The bank has witnessed a rise in bad loans in the recent quarter. In the quarter ended June, gross bad loans as a percentage of total loans rose to 5.53 per cent in the June quarter from 4.96 per cent in the previous three months and 4.27 per cent in the same period a year earlier.

Another lender, Bank of Maharashtra is also planning to sell nearly Rs 500 crore of its bad loans by September-end. The public sector lender had sold Rs 200 crore of NPAs during 2014-15.

The Reserve Bank of India (RBI) has been encouraging banks to sell stressed assets and has allowed to amortise the losses arising out of stressed asset sale over eight quarters. This is a one-time window provided by the banking regulator, which expires in March 2016. RBI has also mandated that ARCs should pay 15 per cent cash upfront when they acquire a stressed asset, which was five per cent earlier.

The rising bad loans are coming at a time when bank credit continues to grow at a sluggish rate of below 10 per cent. In order to tide over this most PSBs are also now focusing on small enterprise and retail.

"Corporate credit is not picking up. But, on the other hand, our focus in the bank is to rebalance the business. We are focusing on MSME, retail and agriculture," said Bansal. He added the bank was targeting a credit deposits growth of 12 per cent for this financial year. Recently, Corporation Bank has also reduced its base rate - the benchmark rate to which all loans are linked - by 10 bps to 9.9 per cent.