Govt banks line up 2,000 cr bad loan sale

At least three banks have started talks with asset reconstruction firms for sale of bad assets

The market for bad loans is gaining momentum with public sector banks lining up at least Rs 2,000 crore of sale of non-performing asset during the current financial year. According to bankers at least three banks have started negotiation with asset reconstruction companies for the sale of bad assets.

According to bankers, Mumbai-based Central Bank of India is likely to put Rs 540 crore of stressed asset on the block while another Mumbai-based lender IDBI Bank is in discussion to sale Rs 200 worth of NPA. Kolkata-based UCO Bank is also negotiating with asset reconstruction firms to sale Rs 380 crore of bad loans.

 

Bankers pointed out they will prefer all cash deals rather than security receipts for the sale of their bad assets, as cash receipts directly help their profitability while security receipts needs to be marked-to-market. Most of the NPAs that are considered for sale are mid corporate accounts.
 

GAINING LIQUIDITY

• Central Bank of India is likely to put on sale Rs 540 crore of stressed assets 
• IDBI Bank is in discussion to sell Rs 200 crore worth of NPAs 
• UCO Bank is also negotiating with asset reconstruction firms to sell Rs 380 crore of bad loans
• All-cash deals of stressed assets had dried up in the last few years, following introduction of stricter norms by Reserve Bank of India
• According to RBI data, as of June, security receipts issued by securitisation and reconstruction companies stood at Rs 16,700 crore

All cash deals of stressed asset deals had dried up in the last few years following introduction of stricter norms by Reserve Bank of India. According to the norms, banks while selling non-performing assets have to work out the net present value of the estimated cash flow associated with the realisable value of the available securities net of the cost of realisation. The sale price, generally, should not be lower than the net present value.

Bankers also pointed out since asset reconstruction companies were not keen for all cash deal, that has also resulted in fewer transaction in this segment. According to RBI data, as on end June security receipts issued by securitization and reconstruction companies were at Rs 16,700 crore, higher by Rs 200 crore than in end March. As at end-June 2012, banks subscribed to almost 70 per cent of total security receipts issued by 14 securitisation/reconstruction companies.

In recent times, one of the biggest deals of bad loans took place when Barclays sold its non-performing credit card portfolio to Kotak Mahindra Bank.