Union Bank defers sale of bad debt

The NPA portfolio on the block comprises 64 loan accounts with principal outstanding balance of Rs 315.47 crore. These loans are be sold either for cash or cash plus security receipts.

"The bank has extended the time for the sale process on a request from the prospective buyers. Most of them are involved in assets put up for sale by the Kolkata-based Investment Bank of India (IIBI)," according to a bank executive.

Union Bank was slated to open the bids in the last week of June and declare the successful bidder towards the end of July. The Mumbai-based public sector bank expects to warp up the process by the end of the second quarter (September 2008), the executive added.

The NPAs mainly comprise industrial and commercial accounts. The bank has written off some accounts, while making provisions in other cases. It has appointed Deloitte Touche Tohmatsu India as a consultant for the sale process.

Banks could go through the recovery process by themselves, but they have to factor the cost and time involved. Hence, it makes sense to sell bad loan accounts to specialised entities, the executive said.

Besides asset restructuring companies such as ARCIL, Standard Chartered Bank and financial institutions have reportedly shown an interest in Union Bank's bad loan portfolio.

Union Bank saw a decline in its bad loans at the end of March 2008. The gross NPAs declined to 2.18 per cent from 2.94 per cent in 2006-07, while the net NPAs came down to 0.17 per cent from 0.96 per cent a year ago.

Focus on the asset quality, a stringent credit review monitoring mechanism and robust recoveries have helped the bank to significantly reduce its impaired advances.