Banks may make additional provisions for security receipts held against bad loans: Report

Several banks are carrying provisions of around 20 to 30 percent of the book value of security receipts (SRs), according to a Business Line report, citing data from FY20 annual reports.

Apart from provisioning for bad loans, many lenders may have to make additional provisions for investments in SRs, which are held against bad loans sold to ARCs (asset reconstruction companies), the report said.

While provisioning of about 20 percent is in compliance with regulations, banks might want to raise provisions during the COVID-19 pandemic.

Moneycontrol could not independently verify the story.

According to State Bank of India's (SBI) annual report, the book value of SRs was Rs 8,761 crore, against which the bank made provisions of around Rs 1,656 crore, or 19 percent Most of these are connected to sale of bad loans between 2014 and 2016.

Out of the state-run lender's total book value of SRs, about Rs 6,000 crore was issued over 5 years ago (but within 8 years), the report added.

“Of this Rs 6,000 crore, about 90 percent will mature between 2024 and 2026. Hence, the impact, if any, of the current pandemic on this portfolio, may not be much. But as a prudent measure we are looking to make additional provisions (over and above regulatory requirement) on these SRs.”