Central Bank may rope in PEs to tackle weak borrowers

Central Bank of India plans to rope in private equity (PE) players for making investments.

Besides cleaning up its balance sheet through sales of bad loans, the bank will give top priority to tackling cases where existing borrowers are facing problems due to a general slump in demand.

The bank is opening asset recovery branches in different areas and using legal and non-legal methods, such as compromise and sale to a third party, for recovery.

“We are exploring options to bring in private equity players who could pick up stake to support management of units. It will help improve recovery and avoid slippages,” a senior bank official said on condition of anonymity. He, however, refused to name the PE investors the bank was in talks with.

 

While equity investors could bring in money and management expertise, there could be changes in ownership in some cases, the official added.

The businesses of many small and medium enterprises (SMEs) have been hit by a general slowdown in demand due to the global economic recession. Many of them are faced with mounting delays in payments by customers. Since these SMEs have a limited ability to put up with a prolonged slowdown, they are looking for extra funds to run their businesses.

Another senior bank official said, “The bank has restructured debts of weak units under the Reserve Bank of India scheme... Yet, there will be some units, which could find it difficult to face the adverse situation,” said another senior bank official. In such cases, banks would get the benefit of the proactive approach of roping in investors. Such units could be merged with other companies in similar lines of business.

The bank had reported a slight drop in its gross non-performing assets (NPAs) to Rs 2,317 crore at the end of March 2009 from Rs 2,350 crore a year ago. Its net NPA rose to Rs 1,063 crore from Rs 1,063 crore during the period.

The Mumbai-based public sector bank has made provisions for the last four-five years for the NPA account in line with regulatory norms. While a part of the proceeds from sales of bad debts would help bolster the bank’s profit and loss side, the remaining could be used to make provisions for fresh NPAs, the official added.