Falling asset prices slow NPA sales

The pace of sale of non-performing assets (NPAs) moderated in 2008-09 as asset prices declined in the aftermath of the global financial crisis, bankers said.

While banks came up with proposals for offloading NPAs, there was a difference in the price at which they (banks) would have liked to sell the assets and what the potential buyers were ready to pay, bankers and officials working with asset reconstruction companies (ARCs) said.

Banks like Bangalore-based Canara Bank put their plan for selling NPAs on hold after lukewarm response ARCs.
 

RECOVERY BLUES Sale of NPAs by select banks (Rs crore)
Bank	2007-08	2008-09
State Bank of India	25.22	288.77
Bank of India	379.00	118.00
Bank of Baroda	634.24	207.60
* Aggregate outstanding value of NPAs sold

 

The realisation value of assets on the block was estimated at Rs 250 crore. There were over 65 accounts, including some small and large corporate cases. The liabilities involved in these were about Rs 1,000 crore.

“They (ARCs) did not show much interest. Very few offers came in. Also, the offers were lower than what the bank had estimated,” said a bank official.

Bank of India (BoI) sold 68 impaired assets worth Rs 118 crore on a bid and portfolio basis in 2008-09 for Rs 89 crore on cash-cum-security receipt terms. Its sale of NPAs was lower in 2008-09 compared with 2007-08, when it sold 111 assets worth Rs 379 crore on a bilateral and portfolio basis.

A BoI official said the sale helped reduce the bank’s gross NPAs and unlock funds in old NPA accounts where there was no scope of immediate realisation. The amount received in written-off accounts improved the bank’s profit, they said.

State Bank of India, the country’s largest lender, received Rs 92.83 crore from selling NPAs in 2008-09 compared with Rs 19.87 crore in 2007-08.

The consideration for FY09 does not include security receipts worth Rs 34.75 crore, recognised at Re one under the Reserve Bank of India norms.

Bankers said the economic slowdown had increased prospects of payment defaults.

So, to contain the rising NPAs, banks may actively work to offload the NPA accounts for which they have made provisions.

Central Bank of India has put NPAs with total outstanding amount of Rs 102 crore on sale to clean up its balance sheet.